CONSOLIDATION OF NON WHOLLY OWNED SUBSIDIARIES

On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $7,900 cash.

The statements of financial position of the two companies immediately after the acquisition transaction are attached as a png.doc below

Required

(a) Calculate consolidated goodwill at the date of acquisition under the proprietary theory.

(b) Prepare a consolidated statement of financial position at the date of acquisition under each of the following:

(i) Parent company extension theory
(ii) Entity theory

(c) Calculate the current ratio and debt-to-equity ratio for P Company under the two theories. Explain which theory shows the strongest liquidity and solvency position and which method best reflects the true financial condition of the company.