Question

Problem 3-1 The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2014, just after the parent had purchased 90% of the subsidiary's stock: Case I Case II Р Cоmpany S Company Р Cоmpany S Company $ 874,900 $259,100 $787,400 $282,400 Current assets Investment in S Company 188,300 188,300 1,398,300 Long-term assets 398,300 1,191,700 398,300 Other assets 69,500 69,900 90,200 39,600 $2,551,700 $697,000 $2,236,900 $750,600 Total Current liabilities $644,700 $268,900 $705,000 $259,400 Long-term liabilities 849,500 288,100 918,100 271,000 598,500 Common stock 181,800 598,500 181,800 Retained earnings (41,800) 15,300 459,000 38,400 $2,551,700 $697,000 $2,236,900 $750,600 Total

Answer 1

Non-controlling Share Entire value 22,500 $ Parent Share Purchase price and Implied Value $ 213,750 $ 236,250 Less: Book value 140,000 126,000 14,000 Difference between Implied and Book value 87,750 8,500 96,250 (87,750) (8,500) (96,250) Increase in Long-term Assets to Fair value $ $ Balance Working Notes: Purchase price: Parent share (50,000 shares x 90 % x$ 4.75) Noncontrolling share (50,000 x 10% x $4.50) 213,750 22,500 Book value: Common stock-S company Retained earnings - S Company 181,800 (41,800) Total Book value 140,000 Parent share (140,000 x 90 %) 126,000 Noncontrolling share (140,000 x 10 %) 14,000