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.