Question

In: Accounting

Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:...

Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:

Penske Stanza
Revenues $ (795,000 ) $ (700,000 )
Cost of goods sold 283,250 175,000
Depreciation expense 184,000 302,000
Investment income Not given 0
Dividends declared 80,000 60,000
Retained earnings, 1/1/18 (732,000 ) (268,000 )
Current assets 510,000 668,000
Copyrights 1,072,000 558,500
Royalty agreements 722,000 1,116,000
Investment in Stanza Not given 0
Liabilities (562,000 ) (1,631,500 )
Common stock (600,000 ) ($20 par) (200,000 ) ($10 par)
Additional paid-in capital (150,000 ) (80,000 )

Note: Parentheses indicate a credit balance.

On January 1, 2018, Penske acquired all of Stanza’s outstanding stock for $818,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition copyrights (with a six-year remaining life) have a $632,000 book value but a fair value of $746,000.

As of December 31, 2018, what is the consolidated copyrights balance?

For the year ending December 31, 2018, what is consolidated net income?

As of December 31, 2018, what is the consolidated retained earnings balance?

As of December 31, 2018, what is the consolidated balance to be reported for goodwill?

a. Consolidated copyrights
b. Consolidated net income
c. Consolidated retained earnings
d. Consolidated goodwill

Solutions

Expert Solution

(Consolidated accounts one year after acquisition)

Stanza acquisition fair value ($10,000 in

            stock issue costs reduce additional paid‑in capital)

$818,000

Book value of subsidiary

            (1/1/18 stockholders' equity balances) (common stock + additional paid in capital +retained earnings) (200000+80000+268000)

548000

Fair value in excess of book value

270000

     

Remaining life

Amortization

Excess fair value allocated to copyrights based on fair value

114000(746000-632000)

6

26000

Goodwill

156000 (270000-114000)

indefinite

0

Total

270000

26000

Part A

Consolidated copyrights

Penske (book value)

1072000

Stanza (book value)

558500

Allocation (above)

114000

Excess amortization, 2018

(26000)

Total

1718500

Part B

Consolidated net income

Revenues (add book values)

1495000

Expenses:

Add book values (283250+175000+184000+302000)

944250

Excess amortizations

26000

970250

Consolidated net income

524750

Part C

Consolidated retained earnings

Retained earnings 1/1/18 (Penske)

732000

Net income 2018 (above)

524750

Dividends declared 2018 (Penske)

(80000)

Total

1176750

Stanza's retained earnings balance as of January 1, 2015, is not included because these operations occurred prior to the acquisition. Stanza's dividends were attributable to Penske and therefore are excluded because they are intra-entity in nature.

Part D

Consolidated goodwill = 156000


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