Reference no: EM133187227

Question - The Zika utility company has a growing market. To meet the growth in demand, Zika established TATA power to build a power plant that Zika will ultimately lease it and use for power production. Zika acquired 25% of TATA's equity for $9,000,000 in cash and guaranteed TATA's liability.

On 3/31/2022 and after completing the buildings and equipment, TATA's balance sheet included Total Assets of $300,000,000 and total liabilities $264,000,000 and equity of $36,000,000.

On the same date (3/31/2022), Zika's balance sheet reported Total Assets of $800,000,000 (including the investment of $9,000,000 in TATA); total liabilities of $600,000,000; and equity of $200,000,000.

Required -

A. From the accounting point of view, explain the relationship between Zika and TATA. Is Zika the beneficiary of TATA's? Why?

B. Prepare Zika's consolidated balance sheet with its variable interest entity TATA on 3/31/2022.