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Math  /  Data & Statistics

QuestionQuestion 3 (10 points) Passerby International purchased 80%80 \% of Standaround Company's outstanding common stock for $200,000\$ 200,000 on January 2, 2014. At that time, the fair value of Standaround's net assets were equal to the book values. The balance sheets of Passerby and Standaround at January 2, 2014 are summarized as follows: \begin{tabular}{lrrr} & Passerby & Standaround & \\ Assets & $1,600,000\$ 1,600,000 & $470,000\$ 470,000 & \\ Liabilities & $840,000\$ 840,000 & $230,000\$ 230,000 & \\ Capital stock & 360,000 & 50,000 \\ Retained earnings & 400,000 & 190,000 & \end{tabular}
Required Determine the consolidated balances as of January 2, 2014 for the following five balance sheet line items:

Studdy Solution

STEP 1

1. Passerby International owns 80% of Standaround Company.
2. The fair value of Standaround's net assets equals the book value.
3. Consolidated financial statements combine the parent and subsidiary as a single entity.
4. Non-controlling interest (NCI) needs to be calculated for the remaining 20% of Standaround.
5. Goodwill is not present since the fair value of net assets equals book value.

STEP 2

1. Calculate the consolidated assets.
2. Calculate the consolidated liabilities.
3. Calculate the consolidated capital stock.
4. Calculate the consolidated retained earnings.
5. Calculate the non-controlling interest.

STEP 3

Calculate consolidated assets:
Consolidated Assets=Passerby Assets+Standaround Assets \text{Consolidated Assets} = \text{Passerby Assets} + \text{Standaround Assets}
=$1,600,000+$470,000=$2,070,000 = \$1,600,000 + \$470,000 = \$2,070,000

STEP 4

Calculate consolidated liabilities:
Consolidated Liabilities=Passerby Liabilities+Standaround Liabilities \text{Consolidated Liabilities} = \text{Passerby Liabilities} + \text{Standaround Liabilities}
=$840,000+$230,000=$1,070,000 = \$840,000 + \$230,000 = \$1,070,000

STEP 5

Calculate consolidated capital stock:
Consolidated Capital Stock=Passerby Capital Stock \text{Consolidated Capital Stock} = \text{Passerby Capital Stock}
=$360,000 = \$360,000

STEP 6

Calculate consolidated retained earnings:
Consolidated Retained Earnings=Passerby Retained Earnings \text{Consolidated Retained Earnings} = \text{Passerby Retained Earnings}
=$400,000 = \$400,000

STEP 7

Calculate non-controlling interest (NCI):
NCI=Standaround Net Assets×NCI Percentage \text{NCI} = \text{Standaround Net Assets} \times \text{NCI Percentage}
=(Standaround Assets−Standaround Liabilities)×20% = (\text{Standaround Assets} - \text{Standaround Liabilities}) \times 20\%
=($470,000−$230,000)×0.20=$48,000 = (\$470,000 - \$230,000) \times 0.20 = \$48,000
The consolidated balances as of January 2, 2014, are:
- Consolidated Assets: \$2,070,000 - Consolidated Liabilities: \$1,070,000 - Consolidated Capital Stock: \$360,000 - Consolidated Retained Earnings: \$400,000 - Non-Controlling Interest: \$48,000

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