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Holding Company owns 60 percent of the outstanding shares of Subsidiary Company. During the current year,...

Holding Company owns 60 percent of the outstanding shares of Subsidiary Company. During the current year, Holding Company sold inventory costing $90,000 to Subsidiary Company for $100,000. Subsidiary Company has already transferred cash in full payment. Subsidiary Company still holds all of this inventory on the last day of the year. At the balance sheet date, Holding Company has total current assets of $700,000 whereas Subsidiary Company has total current assets of $400,000. Assume that there were no allocations established at the date of acquisition. What is the total amount reported on the consolidated balance sheet for current assets?

A) $1,000,000

B) $1,090,000

C) $1,094,000

D) $1,100,000

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Answer #1

As per consolidated financial statements the inter-company transactions are eliminated in full If there remains any unrealised profits is to be eliminatedfrom the value of inventoryto arrive at the consolidated pofit

Hence in the given case the total amount to be reported on the consolidated balance sheet for current assets is $10,90,000:

Current assets of a parent company = $700,000

Current assets of a subsidary company = $400,000

Total current assets in consolidation is = $11,00,000

(Less:) Unrealised profits = $10,000

Total amount to be reported on balance sheet date = $10,90,000

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