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On December 31, Year 1, P Company purchased 80 % of the outstanding shares of S Company for $7,440 cash. The statements of financial position of the two companies immediately after the acquisition transaction appear below.

On December 31, Year 1, P Company purchased 80 % of the outstanding shares of S Company for $7,440 cash. The statements of financial position of the two companies immediately after the acquisition transaction appear below.

FINANCIAL ACCOUNTING
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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On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $7,440 cash. The statements of financial position of the two companies immediately after the acquisition transaction appear below. Plant and equipment (net) Investment in S Company Inventory Accounts receivable Cash Ordinary shares Retained earnings Long-term liabilities Other current liabilities Accounts payable P Company Carrying Amount $8,708 7,440 5,760 4,350 2,700 $ 28,950 $ 11,100 11,050 3,800 1,800 1,200 $ 28,950 S Company Carrying Amount $ 7,600 4,600 2,400 1,650 $ 16,250 $3,600 6,350 2,600 2,400 1,300 $ 16,250 Fair Value $ 6,300 5,100 2,400 1,650 2,600 2,400 1,300 12
Transcribed Image Text:On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $7,440 cash. The statements of financial position of the two companies immediately after the acquisition transaction appear below. Plant and equipment (net) Investment in S Company Inventory Accounts receivable Cash Ordinary shares Retained earnings Long-term liabilities Other current liabilities Accounts payable P Company Carrying Amount $8,708 7,440 5,760 4,350 2,700 $ 28,950 $ 11,100 11,050 3,800 1,800 1,200 $ 28,950 S Company Carrying Amount $ 7,600 4,600 2,400 1,650 $ 16,250 $3,600 6,350 2,600 2,400 1,300 $ 16,250 Fair Value $ 6,300 5,100 2,400 1,650 2,600 2,400 1,300 12
(b) Calculate the current ratio and debt-to-equity ratio for P Company under the identifiable net assets (INA) method and the fair value enterprise (FVE) method. (Round "Current ratio" answers to 2 decimal places and "Debt to equity ratio" answers to 4 decimal places.) Current ratio Debt to equity ratio INA 0.60 0.8600 FVE 0.42 0.4300
Transcribed Image Text:(b) Calculate the current ratio and debt-to-equity ratio for P Company under the identifiable net assets (INA) method and the fair value enterprise (FVE) method. (Round "Current ratio" answers to 2 decimal places and "Debt to equity ratio" answers to 4 decimal places.) Current ratio Debt to equity ratio INA 0.60 0.8600 FVE 0.42 0.4300
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