Parent Company Inc. successfully bids for Child Company Inc. in year X1. Parent Company Inc. has purchased all of Child's shares outstanding for $8,500. Following are excerpts from both companies' financial statements for year X1, prior to the acquisition.
$\begin{array} { lr r } &\text { Parent Company Inc.}& \text { Child Company Inc. }\\text { Total assets}&\$ 37,234 &\$ 5,379\
\\text { Total liabilities } & \$ 23,467 & \$ 3,764 \ \text { Total shareholders' equity } & \$ 13,767 & \$ 1,615 \ \text { Total liabilities and shareholders' equity } & \$ 37,234 & \$ 5,379 \end{array}$
Also assume the following information: the acquisition was accounted for using the purchase method. $1,500 of the excess price relates to depreciable assets, and those assets have an additional useful life of 10 years at the time of the acquisition. Parent Company Inc. uses the straight line depreciation method and has a 34% tax rate. The combined net income for both companies for year X2 (excluding any expenses that need to be recorded as a result of the purchase method accounting for the merger) was $1,560.
-What would be total assets in the consolidated financial statements for the date on which the merger became effective?

Question

Parent Company Inc. successfully bids for Child Company Inc. in year X1. Parent Company Inc. has purchased all of Child's shares outstanding for $8,500. Following are excerpts from both companies' financial statements for year X1, prior to the acquisition.
$\begin{array} { lr r } &\text { Parent Company Inc.}& \text { Child Company Inc. }\\text { Total assets}&\$ 37,234 &\$ 5,379\
\\text { Total liabilities } & \$ 23,467 & \$ 3,764 \ \text { Total shareholders' equity } & \$ 13,767 & \$ 1,615 \ \text { Total liabilities and shareholders' equity } & \$ 37,234 & \$ 5,379 \end{array}$
Also assume the following information: the acquisition was accounted for using the purchase method. $1,500 of the excess price relates to depreciable assets, and those assets have an additional useful life of 10 years at the time of the acquisition. Parent Company Inc. uses the straight line depreciation method and has a 34% tax rate. The combined net income for both companies for year X2 (excluding any expenses that need to be recorded as a result of the purchase method accounting for the merger) was $1,560. 
-What would be total assets in the consolidated financial statements for the date on which the merger became effective?

Quizplus · Accepted Answer

The total assets in the consolidated financial statements for the date on which the merger became effective would be $50,008. This is calculated by adding the total assets of Parent Company Inc. and Child Company Inc., which is $37,234 + $5,379 = $42,613. Then, adding the excess price of $1,500 that relates to depreciable assets, which is $42,613 + $1,500 = $44,113. Finally, subtracting the accumulated depreciation for the depreciable assets, which is $44,113 - $2,615 = $50,008.

Parent Company Inc Also Assume the Following Information: the Acquisition Was Accounted for Year