Parent and Sub Inc On January 1, 2020, Parent Purchased All of Sub Inc

question 24

Multiple Choice

Parent and Sub Inc. had the following balance sheets on December 31, 2019: $\begin{array}{|l|r|r|}\hline & \text { Parent } & \text { Sub } \\\hline \text { Current Assets } & \$ 60,000 & \$ 10,000 \\\hline \text { Fixed Assets (net) } & \$ 100,000 & \$ 60,000 \\\hline \text { Total Assets } & \$ 160,000 & \$ 70,000 \\\hline \text { Current Liabilities } & \$ 42,000 & \$ 35,000 \\\hline \text { Bonds Payable } & \$ 20,000 & \$ 12,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 12,000 \\\hline \text { Retained Earnings } & \$ 8,000 & \$ 11,000 \\\hline \text { Total Liabilities and Equity } & \$ 160,000 & \$ 70,000 \\\hline\end{array}$ On January 1, 2020, Parent purchased all of Sub Inc.'s Common Shares for $40,000 in cash. On that date, Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000, respectively. Assuming that Consolidated Financial Statements were prepared on that date, answer the following:
The Fixed Assets of the combined entity should be valued at:

• A) $70,000
• B) $120,000
• C) $154,000
• D) $160,000

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Definitions:

Domestic Investment

The total spending on capital goods within a country’s borders, which includes expenditures on new buildings, equipment, and technology.

Trade Deficit

An economic measure of a negative balance of trade where a country's imports exceed its exports.

Trade Surplus

A situation where the value of a country's exports exceeds the value of its imports, indicating a positive balance of trade.

Net Exports

The difference between a country’s total exports of goods and services and its total imports of them. Positive net exports indicate a trade surplus, while negative net exports indicate a trade deficit.