Par Inc Purchased 70% of the Outstanding Voting Shares of Sub

Essay

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:
$\begin{array}{|l|r|r|r|} \hline& \text { Par Inc. } & \text { Sub Inc. } & \text { Sub Inc. } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 600,000 & \$ 515,000 & \$ 515,000 \\\hline \text { Accounts Receivable } & \$ 140,000 & \$ 85,000 & \$ 85,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 60,000 \\\hline \text { Investment in Sub Inc. } & \$ 700,000 & & \\\hline \text { Equipment (net) } & \$ 50,000 & \$ 180,000 & \$ 185,000 \\\hline \text { Land } & & \$ 115,000 & \$ 200,000 \\\hline \text { Total Assets } & \$ 1,550,000 & \$ 940,000 \\\hline \text { Current Liabilities } & \$ 100,000 & \$ 280,000&\$280,000 \\\hline \text { Bonds Payable } & \$ 160,000 & \$ 80,000&\$60,000 \\\hline\text { Common Shares }&\$800,000&\$410,000\\\hline\text { Retained Earnings }&\$490,000&\$170,000\\\hline\text { Total Liabilities and Equity }&\$1,550,000&\$940,000\\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2021:
Income Statements
$\begin{array}{|l|r|r|}\hline \text { Sales } & \$ 800,000 & \$ 300,000 \\\hline \text { Investment Revenue } & \$ 21,000 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 240,000 & \$ 180,000 \\\hline \text { Depreciation } & \$ 10,000 & \$ 20,000 \\\hline \text { Interest Expense } & \$ 12,000 & \$ 40,000 \\\hline \text { Other Expenses } & \$ 8,000 & \$ 10,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000\\\hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline \text { Balance, July 1, 2020 } & \$ 490,000 & \$ 170,000 \\\hline \text { Net Income } & \$ 551,000 & \$ 50,000 \\\hline \text { Dividends } & \$(10,000) & \$(5,000) \\\hline \text { Balance, June } 30,2021 & \$ 1,031,000 & \$ 215,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Par Inc. } & \text { Sub Inc. } \\\hline \text { Cash } & \$ 647,500 & \$ 665,000 \\\hline \text { Accounts Receivable } & \$ 250,000 & \$ 35,000 \\\hline \text { Investment in Sub } & \$ 717,500 & \\\hline \text { Inventory } & \$ 90,000 & \$ 45,000 \\\hline \text { Equipment (net) } & \$ 750,000 & \$ 170,000 \\\hline \text { Land } & & \$ 115,000 \\\hline \text { Total Assets } & \$ 2,455,000 & \$ 1,030,000 \\\hline \text { Current Liabilities } & \$ 464,000 & \$ 325,000 \\\hline \text { Bonds Payable } & \$ 160,000 & \$ 80,000 \\\hline \text { Common Shares } & \$ 800,000 & \$ 410,000 \\\hline \text { Retained Earnings } & \$ 1,031,000 & \$ 215,000 \\\hline \text { Total Liabilities and Equity } & \$ 2,455,000 & \$ 1,030,000 \\\hline\end{array}$ Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.
Prepare Par's consolidated balance sheet as at the date of acquisition.