On December 31, Year 1, P Company obtains control over the net assets of S Company by purchasing 100% of the ordinary shares ofS Company. P Company paid for the purchase by issuing ordinary shares with a fair value of $44,000. In addition, P Company paid$1,000 for professional fees to facilitate the transaction. The following information has been assembled just prior to the acquisitiondate:Show Transcribed TextGoodwillPlant assets (net)Current assetsShareholders' equityLong-term debtCurrent liabilitiesShow Transcribed Text(i) the acquisition method(ii) the new-entity methodCarrying Amount$80,00050.000$130,000$ 75,00025,00030.0003$130,000üP Company3Fair Value$ 38,00090,00055,000$ 183,000$ 29,00030,000Carrying Amount$20.00015,000$35.000$18,0007,00010,000S Company$35,000Fair Value$ 22,00026,00014.000$ 62,000$ 8,00010,000Required(a) Prepare a consolidated statement of financial position for P Company and calculate the debt-to-equity ratio immediately after thecombination under excel(b) Which method shows the better solvency position? Briefly explain.(c) In your opinion, which method best reflects the true economic reality for the combined economic entity? Briefly explain.

This is related to accounting, specifically the process of consolidating financial statements when…

On December 31, Year 1, P Company obtains control over the net assets of S Company by purchasing 100% of the ordinary shares of S Company. P Company paid for the purchase by issuing ordinary shares with a fair value of $44,000. In addition, P Company paid $1,000 for professional fees to facilitate the transaction. The following information has been assembled just prior to the acquisition date: Show Transcribed Text Goodwill Plant assets (net) Current assets Shareholders' equity Long-term debt Current liabilities Show Transcribed Text Carrying Amount $ 80,000 50,000 $130,000 $ 75,000 25,000 30,000 P Company $130,000 3 Fair Value $ 38,000 90,000 55,000 $ 183,000 C $ 29,000 30,000 Carrying Amount $ 20,000 15,000 $35.000 $18,000 7,000 10,000 S Company $35,000 Fair Value $22,000 26,000 14.000 $62,000 $ 8.000 10,000 Required (a) Prepare a consolidated statement of financial position for P Company and calculate the debt-to-equity ratio immediately after the combination under excel (i) the acquisition method (ii) the new-entity method (b) Which method shows the better solvency position? Briefly explain. (c) In your opinion, which method best reflects the true economic reality for the combined economic entity? Briefly explain.

On December 31, Year 1, P Company obtains control over the net assets of S Company by purchasing 100% of the ordinary shares of S Company. P Company paid for the purchase by issuing ordinary shares with a fair value of $44,000. In addition, P Company paid $1,000 for professional fees to facilitate the transaction. The following information has been assembled just prior to the acquisition date: Show Transcribed Text Goodwill Plant assets (net) Current assets Shareholders' equity Long-term debt Current liabilities Show Transcribed Text Carrying Amount $ 80,000 50,000 $130,000 $ 75,000 25,000 30,000 P Company $130,000 3 Fair Value $ 38,000 90,000 55,000 $ 183,000 C $ 29,000 30,000 Carrying Amount $ 20,000 15,000 $35.000 $18,000 7,000 10,000 S Company $35,000 Fair Value $22,000 26,000 14.000 $62,000 $ 8.000 10,000 Required (a) Prepare a consolidated statement of financial position for P Company and calculate the debt-to-equity ratio immediately after the combination under excel (i) the acquisition method (ii) the new-entity method (b) Which method shows the better solvency position? Briefly explain. (c) In your opinion, which method best reflects the true economic reality for the combined economic entity? Briefly explain.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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