Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash $ 180 , 000 $ 36 , 000 $ 36 , 000 Accounts Receivable $ 100 , 000 $ 40 , 000 $ 40 , 000 Inventory $ 60 , 000 $ 24 , 000 $ 27 , 000 Plant and Equipment (net) $ 200 , 000 $ 80 , 000 $ 93 , 000 Goodwill $ − $ 8 , 000 Trademark $ − $ 12 , 000 $ 15 , 000 Total Assets $ 540 , 000 $ 200 , 000 Current Liabilities $ 80 , 000 $ 50 , 000 $ 50 , 000 Bonds Payable $ 320 , 000 $ 20 , 000 $ 24 , 000 Common Shares $ 90 , 000 $ 80 , 000 Retained Earnings $ 50 , 000 $ 50 , 000 Total Liabilities and Equity $ 540 , 000 $ 200 , 000 \begin{array}{|l|r|r|r|}\hline & ext { Parent Inc } & ext { Sub Inc } & ext { Sub Inc } \\hline & ext { (caryying value) } & \begin{array}{r} ext { (carrying } \ ext { value) }\end{array} & ext { (fair value) } \\hline ext { Cash } & \$ 180,000 & \$ 36,000 & \$ 36,000 \\hline ext { Accounts Receivable } & \$ 100,000 & \$ 40,000 & \$ 40,000 \\hline ext { Inventory } & \$ 60,000 & \$ 24,000 & \$ 27,000 \\hline ext { Plant and Equipment (net) } & \$ 200,000 & \$ 80,000 & \$ 93,000 \\hline ext { Goodwill } & \$- & \$ 8,000 & \\hline ext { Trademark } & \$- & \$ 12,000 & \$ 15,000 \\hline ext { Total Assets } & \$ \mathbf{5 4 0 , 0 0 0} & \$ 200,000 & \\hline ext { Current Liabilities } & \$ 80,000 & \$ 50,000 & \$ 50,000 \\hline ext { Bonds Payable } & \$ 320,000 & \$ 20,000 & \$ 24,000 \\hline ext { Common Shares } & \$ 90,000 & \$ 80,000 \\hline ext { Retained Earnings } & \$ 50,000 & \$ 50,000 \\hline ext { Total Liabilities and Equity } & \$ 540,000 & \$ 200,000 \\hline\end{array} Cash Accounts Receivable Inventory Plant and Equipment (net) Goodwill Trademark Total Assets Current Liabilities Bonds Payable Common Shares Retained Earnings Total Liabilities and Equity Parent Inc (caryying value) $180 , 000 $100 , 000 $60 , 000 $200 , 000 $ − $ − $ 540 , 000 $80 , 000 $320 , 000 $90 , 000 $50 , 000 $540 , 000 Sub Inc (carrying value) $36 , 000 $40 , 000 $24 , 000 $80 , 000 $8 , 000 $12 , 000 $200 , 000 $50 , 000 $20 , 000 $80 , 000 $50 , 000 $200 , 000 Sub Inc (fair value) $36 , 000 $40 , 000 $27 , 000 $93 , 000 $15 , 000 $50 , 000 $24 , 000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the assets section of Parent's consolidated balance sheet on the date of acquisition would total what amount if the proportionate consolidation method were used?A) $669,600B) $599,200C) $651,000D) $520,000

Question

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019:    Parent Inc   Sub Inc   Sub Inc   (caryying value)    (carrying   value)    (fair value)    Cash  $ 180 , 000 $ 36 , 000 $ 36 , 000  Accounts Receivable  $ 100 , 000 $ 40 , 000 $ 40 , 000  Inventory  $ 60 , 000 $ 24 , 000 $ 27 , 000  Plant and Equipment (net)   $ 200 , 000 $ 80 , 000 $ 93 , 000  Goodwill  $ − $ 8 , 000  Trademark  $ − $ 12 , 000 $ 15 , 000  Total Assets  $ 540 , 000 $ 200 , 000  Current Liabilities  $ 80 , 000 $ 50 , 000 $ 50 , 000  Bonds Payable  $ 320 , 000 $ 20 , 000 $ 24 , 000  Common Shares  $ 90 , 000 $ 80 , 000  Retained Earnings  $ 50 , 000 $ 50 , 000  Total Liabilities and Equity  $ 540 , 000 $ 200 , 000 \begin{array}{|l|r|r|r|}\hline  &  	ext { Parent Inc }  &  	ext { Sub Inc }  &  	ext { Sub Inc } \\hline  &  	ext { (caryying value)  }  &  \begin{array}{r}	ext { (carrying } \	ext { value)  }\end{array}  &  	ext { (fair value)  } \\hline 	ext { Cash }  &  \$ 180,000  &  \$ 36,000  &  \$ 36,000 \\hline 	ext { Accounts Receivable }  &  \$ 100,000  &  \$ 40,000  &  \$ 40,000 \\hline 	ext { Inventory }  &  \$ 60,000  &  \$ 24,000  &  \$ 27,000 \\hline 	ext { Plant and Equipment (net)  }  &  \$ 200,000  &  \$ 80,000  &  \$ 93,000 \\hline 	ext { Goodwill }  &  \$-  &  \$ 8,000  &  \\hline 	ext { Trademark }  &  \$-  &  \$ 12,000  &  \$ 15,000 \\hline 	ext { Total Assets }  &  \$ \mathbf{5 4 0 , 0 0 0}  &  \$ 200,000  &  \\hline 	ext { Current Liabilities }  &  \$ 80,000  &  \$ 50,000  &  \$ 50,000 \\hline 	ext { Bonds Payable }  &  \$ 320,000  &  \$ 20,000  &  \$ 24,000 \\hline 	ext { Common Shares }  &  \$ 90,000  &  \$ 80,000 \\hline 	ext { Retained Earnings }  &  \$ 50,000  &  \$ 50,000 \\hline 	ext { Total Liabilities and Equity }  &  \$ 540,000  &  \$ 200,000 \\hline\end{array}  Cash   Accounts Receivable   Inventory   Plant and Equipment (net)    Goodwill   Trademark   Total Assets   Current Liabilities   Bonds Payable   Common Shares   Retained Earnings   Total Liabilities and Equity  ​  Parent Inc   (caryying value)   $180 , 000 $100 , 000 $60 , 000 $200 , 000 $ − $ − $ 540 , 000 $80 , 000 $320 , 000 $90 , 000 $50 , 000 $540 , 000 ​  Sub Inc   (carrying   value)   ​ $36 , 000 $40 , 000 $24 , 000 $80 , 000 $8 , 000 $12 , 000 $200 , 000 $50 , 000 $20 , 000 $80 , 000 $50 , 000 $200 , 000 ​  Sub Inc   (fair value)   $36 , 000 $40 , 000 $27 , 000 $93 , 000 $15 , 000 $50 , 000 $24 , 000 ​ ​   Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the assets section of Parent's consolidated balance sheet on the date of acquisition would total what amount if the proportionate consolidation method were used?A)  $669,600B)  $599,200C)  $651,000D)  $520,000

Adriana Gonzales · Accepted Answer

Final Answer : B, Explanation :  The proportionate consolidation method involves adding to the parent's balance sheet a proportionate share of the subsidiary's assets and liabilities, based on the percentage of ownership. Here, Parent Inc acquires 80% of Sub Inc. To calculate the total assets section of Parent's consolidated balance sheet, we add 80% of Sub Inc's carrying value of assets to Parent Inc's assets. Parent Inc's assets = $540,00080% of Sub Inc's assets = 80% of $200,000 = $160,000Total consolidated assets = $540,000 + $160,000 = $700,000However, the acquisition is made for $180,000 in cash, which reduces Parent Inc's cash and thus its total assets by that amount.$700,000 (total assets after adding Sub Inc's assets) - $180,000 (cash paid for acquisition) = $520,000This calculation does not match any of the provided options directly because the correct approach to this question involves adjusting for the fair value of Sub Inc's assets and liabilities, not just the carrying value. The correct calculation should consider the fair value adjustments and the goodwill generated from the acquisition, which is not reflected in the simple calculation provided. Therefore, the explanation provided does not lead to a correct answer based on the options given, indicating a misunderstanding of the proportionate consolidation method or an error in the calculation process.

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