The two following separate cases show the financial position of a parent company and its subsidiary company on November 30, 2011, just after the parent had purchased 90% of the subsidiary's stock: Case I Case II
P Company S Company P Company S Company
Current assets 880,000 260,000 780,000 280,000
Investment in S Company 190,000 190,000
Long-term assets 1,400,000 400,000 1,200,000 400,000
Other assets 90,000 40,000 70,000 70,000
Total 2,560,000 700,000 2,240,000 750,000
Current liabilities 640,000 270,000 700,000 260,000
Long-term liabilities 850,000 290,000 920,000 270,000
Common stock 600,000 180,000 600,000 180,000
Retained earnings 470,000 (40,000) 20,000 40,000
Total 2,560,000 700,000 2,240,000 750,000
Required:
Prepare a November 30, 2011, consolidated balance sheet workpaper for each of the foregoing cases.
In Case I, any difference between book value of equity and the value implied by the purchase price relates to subsidiary long-term assets.
In Case II, assume that any excess of book value over the value implied by purchase price is due to overvalued long-term assets.