Consolidated Workpaper: Two Cases
The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2011, just after the parent had purchased 90% of the subsidiary’s stock:
| Case I | Case II | |||
| P Company | S Company | P Company | S Company | |
| Current assets | 880,000 | 260,000 | 780,000 | 280,000 |
| Investment in S Company | 190,000 | 190,000 | ||
| Long-term assets | 1,400,000 | 400,000 | 1,200,000 | 400,000 |
| Other assets | 90,000 | 40,000 | 70,000 | 70,000 |
| Total | 2,560,000 | 700,000 | 2,240,000 | 750,000 |
| Current liabilities | 640,000 | 270,000 | 700,000 | 260,000 |
| Long-term liabilities | 850,000 | 290,000 | 920,000 | 270,000 |
| Common stock | 600,000 | 180,000 | 600,000 | 180,000 |
| Retained earnings | 470,000 | (40,000) | 20,000 | 40,000 |
| Total | 2,560,000 | 700,000 | 2,240,000 | 750,000 |
Prepare a November 30, 2011, consolidated balance sheet workpaper for each of the foregoing cases.
In Case I, any difference between book value of equity and the value implied by the purchase price relates to subsidiary long-term assets.
In Case II, assume that any excess of book value over the value implied by purchase price is due to overvalued long-term assets.
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