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Compute the difference between cost and book value

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Reference no: EM131789252

Question - The following balances were taken from the records of S Company:

Common stock (1/1/11 and 12/31/11) $720,000

Retained earnings 1/1/11 $160,000

Net income for 2011 180,000

Dividends declared in 2011 (40,000)

Retained earnings, 12/31/11 300,000

Total stockholders' equity on 12/31/11 $1,020,000

P Company purchased 75% of S Company's common stock on January 1, 2011 for $900,000. The difference between implied value and book value is attributable to assets with a remaining useful life on January 1, 2011 of ten years.

Required:

A. Compute the difference between cost/(implied) and book value applying:

1. Parent company theory.

2. Economic unit theory.

Reference no: EM131789252

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