2 Questions: What's the Difference???

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  • February 21, 2013 at 7:39 pm #176264
    Anonymous
    Inactive

    Question 1: Papa Company acquired land with an office building on it from its subsidiary, Sonny Company, for $110,000. Prior to the sale, Sonny’s carrying value of the land was $60,000 and its net carrying value of the building was $50,000. At the time of the transaction, Papa appropriately determined that the land had a fair value of $75,000 and the building had a fair value of $35,000. At what amount should the land and building be reported on Papa’s consolidated statements prepared immediately after the transaction?

    Answer: Land: 60,000, Building: 50,000

    Question 2: Papa Company acquired land with an office building on it from its subsidiary, Sonny Company, for $110,000. Prior to the sale, Sonny’s carrying value of the land was $60,000 and its net carrying value of the building was $50,000. At the time of the transaction, Papa appropriately determined that the land had a fair value of $75,000 and the building had a fair value of $35,000. At what amount should Papa record the land and building on its books at the date of the transaction?

    Answer: Land: 75,000, Building: 35,000

    As far as I can tell, the only difference is the last sentence in each question, but why would the numbers be different if it was recorded at the date of transaction or after the transaction?

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  • February 21, 2013 at 8:50 pm #397726
    Anonymous
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    The last sentence is the key to the problem. The first one is the value on the Consolidated statements and the second one is their individual balance sheet. When you have a consolidation, each company keeps their own books and transactions back and forth are eliminated during the consolidation process. The books of the parent and the books of the sub stay the same. The consolidated statements are done on a worksheet only. Make sense?

    February 21, 2013 at 8:54 pm #397727
    Anonymous
    Inactive

    Ah, I see. So for the first question, you use the 60,000 and 40,000 amounts because you're reporting them on the consolidated financial statements and you're basically getting rid of the transaction (hope that's right).

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