Parent Company acquired 10% interest in Sub Company. Parent Company Balance Sheet Sub Company...

Question:

Parent Company acquired 10% interest in Sub Company.

Parent Company Balance Sheet Sub Company Balance Sheet
Assets, Liabilities, & Equities Book Value Assets, Liabilities, & Equities Book Value Fair Value
Cash $250,000 Cash $40,000 $40,000
AR 30,000 AR 15,000 10,000
Inventory 150,000 Inventory 105,000 200,000
Land 100,000 Land 60,000 100,000
Plant and Equipment 600,000 Plant and Equipment 400,000 300,000
Less: Accumulated Depreciation (150,000) Less: Accumulated Depreciation (150,000)
Total Assets 980,000 Goodwill 10,000
AP 20,000 Total Assets 480,000 650,000
Common Stock 100,000 AP 50,000 50,000
Additional Paid-in Capital 560,000 Common Stock 100,000
Retained Earnings 300,000 Additional Paid-in Capital 60,000
Total Liabilities & Equity $980,000 Retained Earnings 270,000
Total Liabilities & Equity $480,000

1. Which of the following describes the ownership interest of Parent Company over Sub Company?

a) Control

b) Significant Influence

c) Insignificant Interest

d) None of the above

Investment

Investment is an asset account presented in the balance sheet. Accounting for investment will vary depending on the ownership interest acquired by a company. They can use cost model, equity model or acquisition model.

Answer and Explanation:

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What is an Investment? - Definition & Overview

from Corporate Finance: Help & Review

Chapter 2 / Lesson 6
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