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Grant, Inc. has current receivables from affiliated companies at December 31, 2011, as follows:
• A $50,000 cash advance to Adams Corporation. Grant owns 30% of the voting stock of Adams and accounts for the investment by the equity method.
• A receivable of $160,000 from Bullard Corporation for administrative and selling services. Bullard is 100% owned by Grant and is included in Grant’s consolidated statements.
• A receivable of $100,000 from Carpenter Corporation for merchandise sales on open account. Carpenter is a 90% owned, unconsolidated subsidiary of Grant.
In the current assets section of its December 31, 2011 consolidated balance sheet, Grant should report accounts receivable from investees in the total amount of
A. $ 90,000
B. $140,000
C. $150,000
D. $310,000
ANSWER is $150,000.
Wiley answer explanation: The accounts receivable from investees to be reported on the balance sheet should only include the receivables from investees considered unconsolidated subsidiaries. The receivables from the unconsolidated subsidiaries ($50,000 + $100,000) would not be eliminated and, therefore, would be reported as receivables in the consolidated balance sheet. However, the $160,000 receivable from the consolidated subsidiary would be eliminated on the consolidated worksheet and thus not reported on the consolidated balance sheet.
But my question is why isn’t it 30% of $50,000 for the Adams transaction? And why isn’t it 90% of $100,000 for the Carpenter transaction? So I thought the answer would be ($15,000 + $90,000) = $105,000. I know $105,000 is not even an answer choice, but this is a common type of question on the FAR exam and I need to know the reasoning behind this. Thank you.
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