Question

P2. On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping Corporation's voting shares, at underlying book value. Plimsol accounts for its investment in Shipping at cost. Shipping's retained earnings was $75,000 on the date of acquisition. On December 31, 20X4, the trial balance data for the two companies are as follows:

	Plimsol Co.							Shipping Corp.
Item	Debit			Credit				Debit						Credit
Current Assets	$	100,000							$	75,000
Depreciable Assets (net)		200,000								150,000
Investment in Shipping Corp.		125,000
Other Expenses		60,000								45,000
Depreciation Expense		20,000								15,000
Dividends Declared		25,000								15,000
Current Liabilities					$	40,000							$		25,000
Long-Term Debt						75,000									50,000
Common Stock						100,000									50,000
Retained Earnings						150,000									75,000
Sales						150,000									100,000
Dividend Income, Shipping Corp.						15,000
	$	530,000			$	530,000			$	300,000			$		300,000

Required:

1. what amount of net income will be reported in the consolidated financial statements prepared on December 31, 20X4?

2.what amount of total assets will be reported in the consolidated balance sheet prepared on December 31, 20X4?

3. what amount of retained earnings will be reported in the consolidated balance sheet prepared on December 31, 20X4?

4. what amount of total liabilities will be reported in the consolidated balance sheet prepared on December 31, 20X4?

5. what amount of total stockholders' equity will be reported in the consolidated balance sheet prepared on December 31, 20X4?

Answer 1

Q 1.) What amount of net income will be reported in the consolidated financial statements prepared on December 31, 20X4?

Ans: Net Income= Sales+ Other Income - Expenses

Total Sales: (150,000+100,000)=                                                            $250,000

Total Dividend Income: (15,000) =                                                          $ 15,000

Less: Total Expenses (Other Expense+Depreciation)

               (60,000+45,000+20,000+15,000)                                             $140,000

Total Income                                                  $125,000

Q. 2) What amount of total assets will be reported in the consolidated balance sheet prepared on December 31, 20X4?

Ans: Total Assets= (Fixed Assets+ Current Assets)

Fixed Assets (200,000+150,000)                                                              $350,000

Current Assets (100,000+75,000)                                                            $175,000

Investments                                                                                              $125,000

Total Assets $650,000

Q.3) What amount of retained earnings will be reported in the consolidated balance sheet prepared on December 31, 20X4?

Ans: Total Retained Earnings (150,000+75,000)= $225,000

Q. 4) What amount of total liabilities will be reported in the consolidated balance sheet prepared on December 31, 20X4?

Ans: Total Liability= (Common Stocks+ Preferred Stocks+Long Term Liability + Current Liability)

Common Stock (100,000+50,000)                                                           $150,000

Retained Earnings+Net Income- Declared Div

(225,000+ 125,000-40,000)                                                $310,000

Long term Liability (75,000+50,000)                                                       $125,000

Current Liability (40,000+25,000)                                                           $ 65,000

Total Liability                                                                                         $650,000

Q5) What amount of total stockholders' equity will be reported in the consolidated balance sheet prepared on December 31, 20X4?

Ans: Total Stocks= $100,000+$50,000= $150,000