Question

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

Answer 1

(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