Question

Balance sheet information for Pawn Company and its 90%-owned subsidiary, Sox Corporation, at December 31, 20X1, is summarized as follows:
Pawn Sox
Current assets-net $200,000 $50,000
Property, plant, and equipment-net 1,000,000 600,000
Investment in Sox 558,000
$1,758,000 $650,000
Current liabilities $100,000 $30,000
Capital stock 800,000 400,000
Retained earnings 858,000 220,000
$1,758,000 $650,000
Pawn acquired its interest in S for cash when S's assets and liabilities were smaller than their fair values. The consolidated balance sheet of P and S at December 31, 20X1 will show:
a. non-controlling interest, $65,000
b capital stock, $800,000
c. investment in Sioux, $558,000
d. retained earnings, $1,078,000

Answer 1

Answer:

b. capital stock, $800,000

Explanation:

a. Non-controlling interest, $65,000 is incorrect

Reason: The Non-controlling interest would be 10% of the net assets

Net assets = 650,000 - 30,000  =620,000

The Non-controlling interest would be 10% of the net assets

= $620,000 *10%   = $62,000

b. b capital stock, $800,000 is Correct

Company will show the capital stock as $800,000  in the consolidated balance sheet. In consolidated financial statements of any company, the amount will be reflected for the equity that with the outside shareholders, and in other company share purchased are not shown under the capital stock account  

c. investment in Sioux, $558,000 is incorrect

Reason: investment in Sioux will not be shown in the consolidated balance sheet and will be eliminated in consolidation

d. Retained earnings, $1,078,000 - Incorrect

Reason: Retained earning as summarized in the Balance sheet carry the value of  $1,758,000 + $650,000