FAR Consolidation question.

  • Creator
    Topic
  • #186394
    Anonymous
    Inactive

    Hey guys, I am strugging with this question. What I dont get is why the NCI is not included in the consolidated Stockholders equity section since apparently the parent owns only 80% of the subsidiary.Any help would be appreciated.

    On January 1, 20X1, Dallas, Inc., purchased 80% of Style, Inc.’s, outstanding common stock for $120,000. On that date, the carrying amounts of Style’s assets and liabilities approximated their fair values. During 20X1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows:

    Dallas Style

    12/31/X1 12/31/X1 01/01/X1




    Investment in Style $132,000

    Other assets $138,000 $115,000 $100,000

    Common stock 50,000 20,000 20,000

    Additional paid-in capital 80,250 44,000 44,000

    Retained earnings 139,750 51,000 36,000

    The combination is accounted for as a purchase (initiated after June 30, 2001, but before a fiscal year beginning after December 15, 2008). What amount of total stockholders’ equity should be reported in Dallas’ December 31, 20X1, consolidated balance sheet?

    Correct

    A. $270,000

    B. $286,000

    C. $362,000

    D. $385,000

    Correct Answer: A

    Answer Explanation

    Under the principle of consolidation, the parent and subsidiary are considered a single economic entity. Thus, the consolidated balance sheet reports the combined (parent plus subsidiary) asset and liability accounts. The investment in subsidiary on the parent’s balance sheet is eliminated against the stockholders’ equity accounts of the subsidiary.

    The single parent-sub entity owns all the net assets of both entities. Total stockholders’ equity accounts on the consolidated balance sheet equals the total stockholders’ equity of the parent only; the combined entity cannot own stocks of itself (i.e., of the subsidiary). Therefore, Dallas, Inc., reports total stockholders’ equity account on December 31, 20X1, of $270,000 ($50,000 + $80,250 + $139,750).

  • You must be logged in to reply to this topic.