Ai need help
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Joined: 27 Sep 2010
Location: United States
Online Status: Offline
Posts: 10
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| Posted: 27 Sep 2010 at 21:12 | IP Logged
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don't quit get why Purl(parent) and Scott(sub) asset is combined when consolidated. shouln't the Scott be eliminated?
The separate condensed balance sheets and income statements of Purl Corp. and its wholly-owned
subsidiary, Scott Corp., are as follows:
BALANCE SHEETS
December 31, 1990
Purl Scott
Assets
Current assets
Cash $ 80,000 $ 60,000
Accounts receivable (net) 140,000 25,000
Inventories 90,000 50,000
Total current assets 310,000 135,000
Property, plant, and equipment (net) 625,000 280,000
Investment in Scott (equity method) 400,000 -
Total assets $1,335,000 $415,000
Additional information:
• On January 1, 1990, Purl purchased for $360,000 all of Scott's $10 par, voting common stock. On
January 1, 1990, the fair value of Scott's assets and liabilities equaled their carrying amount of
$395,000 and $145,000, respectively, except that the fair values of certain items identifiable in Scott's
inventory were $10,000 more than their carrying amounts. These items were still on hand at
December 31, 1990.
• During 1990, Purl and Scott paid cash dividends of $100,000 and $30,000, respectively. For tax
purposes, Purl receives the 100% exclusion for dividends received from Scott.
• There were no intercompany transactions, except for Purl's receipt of dividends from Scott and Purl's
recording of its share of Scott's earnings.
• Both Purl and Scott paid income taxes at the rate of 30%.
• During Year X, there was no impairment of goodwill.
In the December 31, 1990, consolidated financial statements of Purl and its subsidiary:
Total current assets should be:
a. $455,000
b. $445,000
c. $310,000
d. $135,000
CPA-00486 Explanation
Choice "a" is correct, $455,000 total current assets.
Purl $310,000
Scott 135,000
Inventory adjust to FMV 10,000
$455,000
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Topic: consolidations - FARE
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