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Homework answers / question archive / On January 2, 2019, Parker Corporation invests in the stock of Quarry Corporation
On January 2, 2019, Parker Corporation invests 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.
Parker Corp
Balance Sheet (in thousands)
Dec 31, 2019
Current assets $40,000
Property, net $450,000
Identifiable intangibles $5,000
Total assets $495,000
Current Liabilities $20,000
Long-term liabilities 200,000
Capital Stock 90,000
Retained Earnings 185,000
Total Liabilities and equity 495,000
Parker Corporation
Income Statement (in thousands)
Year ended Dec 31, 2019
Sales Revenue $900,000
Cost of sales (750,000)
Operating Expenses (140,000)
Net Income $10,000
Quarry Corporation financial statements for 2019 are as follows:
Quarry Corporation
Balance Sheet (in thousands)
December 31, 2019
Current Assets $5,000
Property, net 85,000
Total Assets $90,000
Current Liabilities $2,000
Long-term liabilities 81,000
Capital stock, $1 par 1,000
Retained earnings 6,000
Total liabilities and equity $90,000
Quarry Corporation
Income Statement (in thousands)
Year ended December 31, 2019
Sales Revenue $60,000
Cost of Sales (20,000)
Operating Expenses (37,000)
Net Income $3,000
Required
Prepare Parker's December 31, 2019, balance sheet and 2019 income statement under each of the following circumstances:
a. Parker's investment consists of 100,000 shares costing $15/share, and Parker classifies it as having no significant influent. The shares have a market value of $12/share on December 31, 2019.
b. Parker's investment consists of 400,000 shares costing $15/share, and Parker accounts for it using the equity method. The investment is not impaired at year-end.
c. Parker acquires all of Quarry's shares for $15 million in cash, retires the shares and merges with Quarry. Goodwill is unimpaired in 2019.
