Intercorporate Investment

Why the long term debt to equity ration under the consolidation method is 1,000/1,750 ?


1000 is just combining the debt

There is a bit more to the $1,750. Boswell’s Assets and Liabilities get revalued to FV. It’s net equity is 580 going in to the transaction. If Nin paid $320 for 50%, it implies that that the Boswell is worth $640. The $60 difference is attributed to unrecognized licenses, according to the problem.

So, Boswell’s equity upon consolidation is 640 (580 + 60). Now consoolidate. First, eliminate Nin’s “Investment in Sub” of $320 on their Balance Sheeet against Boswell’s Equity, and combine. You get the $1,750.

Consolidated Equity then equals 1,750. : Nin 1430 + Boswell 640 - Nin’s Invesment in Bowsell 320. = 1,750

Keys : Revlaue Boswell’s assets to get the extra $60. Know you must elimianate Nin’s investment in Boswell ($320) against Boswell’s equity to avoid double-counting.