Reference no: EM13608255

Fort Bend Company contributes cash of $250,000 and Costal Bend Company contributes net assets of $250,000 to create Victoria Company on January 2011. Fort Bend and Costal Bend each received a 50% equity interest in Victoria. Victoria's financial statements for the first year of operations are as follows. Victoria Company Income Statement 2011 Revenues $170,000 Expenses 100,000 Income before tax 70,000 Tax expense 10,000 Net income $60,000 Victoria Company Balance Sheet December 31, 2011 Cash $100,000 Liabilities $190,000 Inventory 130,000 Common stock 500,000 PPE (net) 520,000 Retained earnings 60,000 Total $750,000 Total $750,000 Before making any accounting entries related to its investment in Victoria, Fort Bend Company's financial statement for the year ended December 31, 2011 are as follows: Fort Bend Company Income Statement 2011 Revenues $900,000 Expenses (500,000) Income before tax 400,000 Tax expense (100,000) Net income $300,000 Fort Bend Company Balance Sheet December 31, 2011 Cash $150,000 Liabilities $100,000 Inventory 200,000 Common stock 850,000 PPE (net) 750,000 Retained earnings 400,000 Invest in Victoria 250,000 Total $1,350,000 Total $1350,000

Required:

(1) Restate Fort Bend's 2011 financial statements to properly account for its investment in Victoria Company under 1) the proportionate consolidation method, and 2) the equity method.

(2) Calculate and compare the following ratios for Fort Bend Company under the two different methods for accounting for its investment in Victoria Company: 1)profit margin (net income/revenues), and 2) debt to equity (total liabilities / total stockholders' equity)