P1.11 Equity Investments, Various Reporting Methods vests in the stock of Quarry
ID: 2328155 • Letter: P
Question
P1.11 Equity Investments, Various Reporting Methods vests in the stock of Quarry Corporation. Quarry's book value is $4 million and its assets and liabilities are reported at amounts approximating fair value. Quarry reports income of $3 million in 2019. Parker's December 31,2019, balance sheet and 2019 income statement, ignoring its investment in Quarry's stock follow. Neither company reports other comprehensive income LO 1, 2,3 On January 2, 2019, Parker Corporation in- PARKER CORPORATION Balance Sheet (in thousands) December 31, 2019 $ 20,000 200,000 90,000 185,000 $40,000 Current liabilities. Current assets Property, net 450,000 Long-term liabilities Retained earnings Total assets .. . .$495,000 Chapter 1Intercorporate Investments: An Overview PARKER CORPORATION Income Statement (in thousands) Year ended December 31, 2019 Cost of sales... Operating expenses .(750,000) 140,000) . . .$ 10.000 Quarry Corporation's financial statements for 2019 are as follows: QUARRY CORPORATION Balance Sheet (in thousands) December 31, 2019 S 2,000 81,000 1,000 6,000 $90,000 .. 5,000 85,000 Current liabilities. .. Long-term liabilities Retained eamings Total liabilities and equity.. $90,000 QUARRY CORPORATION Income Statement (in thousands) Year ended December 31, 2019 .(20.000) .. $ 3,000Explanation / Answer
a) In case of Company having no significant influence Parker Corporation Income Statement (In Thousands) As at December 31'2019 Particular Amount Sales Revenue $9,00,000 Less: Cost of Sales $7,50,000 Less Operating expenses $1,40,000 $10,000 Parker Corporation Balance Sheet ((In Thousands)) As at December 31'2019 Assets Amount($) Liablities Amount($) Current Asset $40,000 Current Liablities $20,000 Property,Net $4,50,000 Long Term Liablities $2,00,000 Identifaiable Intangibles $5,000 Capital Stock $90,000 Retained Earning $1,85,000 $4,95,000 $4,95,000 We are presuming that Investment made under Quarry Corporation by Parker corporation is long term so there be no impact made in books for decline in market value of shares c) In case of Company accquires all shares Parker Corporation Income Statement (In Thousands) As at December 31'2019 Particular Amount Sales Revenue $9,60,000 Less: Cost of Sales $7,70,000 Less Operating expenses $1,77,000 $13,000 Parker Corporation Balance Sheet ((In Thousands)) As at December 31'2019 Assets Amount($) Liablities Amount($) Current Asset $45,000 Current Liablities $22,000 Property,Net $5,35,000 Long Term Liablities $2,81,000 Identifaiable Intangibles $5,000 Capital Stock $90,000 Retained Earning $1,92,000 $5,85,000 $5,85,000 b) In case of Company accquires 400000 shares Parker Corporation Income Statement (In Thousands) As at December 31'2019 Particular Amount Sales Revenue $9,60,000 Less: Cost of Sales $7,70,000 Less Operating expenses $1,77,000 $13,000 Share of Profit from Quarry Corporation $1,200 (Working Note 1) $14,200 Working Share of Profit From Quarry Corporation Total profit $3,000 Share of Profit of Parker Corporation $1,200 Parker Corporation Balance Sheet ((In Thousands)) As at December 31'2019 Assets Amount($) Liablities Amount($) Current Asset $41,200 Current Liablities $20,000 Property,Net $4,50,000 Long Term Liablities $2,00,000 Identifaiable Intangibles $5,000 Capital Stock $90,000 Retained Earning $1,86,200 $4,96,200 $4,96,200
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