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Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2014, at a cost of $400,000. The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders' land was $10,000, and fair value was $22,000. The book value of Sanders' inventory was $30,000, and fair value was $25,000.

-Assume Paris's inventory account had a book value of $40,000 and a fair value of $44,000 on January 1,2014.Using the parent company theory,what was the amount reported on the consolidated balance sheet for inventories on January 1,2014?

Question

Use the following information to answer the question(s) below.

Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1, 2014, at a cost of $400,000. The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings. Book values were equal to fair values except for land and inventory. The book value of Sanders' land was $10,000, and fair value was $22,000. The book value of Sanders' inventory was $30,000, and fair value was $25,000.

-Assume Paris's inventory account had a book value of $40,000 and a fair value of $44,000 on January 1,2014.Using the parent company theory,what was the amount reported on the consolidated balance sheet for inventories on January 1,2014?

Quizplus · Accepted Answer

Since the fair value of Paris's inventory is higher than its book value, the consolidated inventory will be valued at the fair value of $44,000. Therefore, the answer is $44,000 + ($22,000*2) = $66,000, as there are two subsidiaries in the question. The answer is B.

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