on december 31 year 1 p company purchased 80 of the outstanding shares of s company 3387283

On December 31, Year 1, P Company purchased 80% of the outstanding shares of S Company for $6,960 cash. The statements of financial position of the two companies immediately after the acquisition transaction appear below. Required: (a) Prepare a consolidated statement of financial position at the date of acquisition under each of the following: (i) Proprietary theory (ii) Parent company theory (iii) Parent company extension theory (iv) Entity theory (b) Calculate the current ratio and debt-to-equity ratio for P Company under the four different theories. Explain which theory shows the strongest liquidity and solvency position and which method best reflects the true financial condition of the company.

 

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