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Parent and Sub Inc had the following balance sheets on December 31,2008: On January 1,2009 Parent purchased all of Sub Inc's Common Shares for $40,000 in cash.On that date,Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000,respectively.Assuming that Consolidated Financial Statements were prepared on that date,answer the following:
-The Shareholder's Equity section of the Consolidated Balance Sheet would show what amount?
A)$121,000
B)$90,000
C)$19,000
D)$98,000

Question

The following data pertains to questions 
Parent and Sub Inc had the following balance sheets on December 31,2008:  On January 1,2009 Parent purchased all of Sub Inc's Common Shares for $40,000 in cash.On that date,Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000,respectively.Assuming that Consolidated Financial Statements were prepared on that date,answer the following:
-The Shareholder's Equity section of the Consolidated Balance Sheet would show what amount?
A)$121,000 
B)$90,000 
C)$19,000 
D)$98,000

Quizplus · Accepted Answer

The consolidated balance sheet would combine Parent and Sub Inc's assets and liabilities. Since Parent purchased all of Sub Inc's common shares for $40,000 in cash, Sub Inc is now a wholly-owned subsidiary of Parent. As such, the common shares account in Sub Inc's shareholder's equity section would be eliminated and replaced with a new line item called "Non-controlling Interest" to reflect any portion of Sub Inc's equity that is not owned by Parent. 
The consolidated balance sheet shares Parent's equity and Sub's equity at the time of the acquisition, which was $71,000 and $27,000 respectively. Therefore, the Shareholder's Equity section of the Consolidated Balance Sheet would show a total of $98,000 ($71,000 + $27,000). So, the correct answer is D.

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