Two Hollywood companies had the following balance sheet accounts as of December 31, 20X7 ($ in...

Two Hollywood companies had the following balance sheet accounts as of December 31, 20X7 ($ in millions):

                                         Lexia   Hudson                                        Lexia       Hudson
Cash and receivables       $60   $44        Current liabilities               $100       $40
Inventories                         240   6            Common stock                   200       20
Plant assets, net                300   190        Retained earnings              300       180
Total assets                      $600   $240     Total liab. and stk. eq.       $600       $240
Net income for 20X7         $38     $8

On January 4, 20X8, these entities combined. Lexia issued $360 million of its shares (at market value) in exchange for all the shares of Hudson, a motion picture division of a large company. The inventory of films acquired through the combination had been fully amortized on Hudson's books.

During 20X8, Hudson received revenue of $42 million from the rental of films from its inventory.
Lexia earned $40 million on its other operations (i.e., excluding Hudson) during 20X8. Hudson
broke even on its other operations (i.e., excluding the film rental contracts)
during 20X8.

1. Prepare a consolidated balance sheet for the combined company immediately after the combination. Assume $160 million of the purchase price was assigned to the inventory of films. The fair values of all other Hudson assets and liabilities were equal to their book values.

2. Prepare a comparison of Lexia's consolidated net income between 20X7 and 20X8, where the cost of the film inventories would be amortized on a straight-line basis over 4 years. What would be the net income for 20X8 if the $160 million were assigned to goodwill instead of the inventory of films and goodwill was not amortized?

Expert Solution

ekkarill92 answered 2 months ago

BALANCE SHEET December 31, 20X8 and 20X7 (in thousands) 20X8 20X7 Assets Current assets Cash and...

BALANCE SHEET December 31, 20X8 and 20X7 (in thousands) 20X8 20X7 Assets Current assets Cash and cash equivalents $3,019 $1,050 Trade receivables 485 450 Prepaid advertising expenses 59 609 Prepaid expenses and other current assets 175 230 Total current assets 3,738 2,339 Fixed assets, net 3,321 3,926 Total assets $7,059 $6,265 Liabilities and shareholders' equity Current liabilities Accounts payable $1,070 $ 909 Current maturities of notes payable 42 316 Deferred revenue 1,973 1,396 Other current liabilities 171 12 Total current...

DietWeb, Inc. BALANCE SHEET December 31, 20X8 and 20X7 (in thousands) 20X8 20X7 Assets Current assets...

DietWeb, Inc. BALANCE SHEET December 31, 20X8 and 20X7 (in thousands) 20X8 20X7 Assets Current assets Cash and cash equivalents $3,019 $1,050 Trade receivables 485 450 Prepaid advertising expenses 59 609 Prepaid expenses and other current assets 175 230 Total current assets 3,738 2,339 Fixed assets, net 3,321 3,926 Total assets $7,059 $6,265 Liabilities and shareholders' equity Current liabilities Accounts payable $1,070 $ 909 Current maturities of notes payable 42 316 Deferred revenue 1,973 1,396 Other current liabilities 171 12...

The December 31, 2021, balance sheet of the Windsor, Inc. had Accounts Receivable of $670,000 and...

The December 31, 2021, balance sheet of the Windsor, Inc. had Accounts Receivable of $670,000 and a credit balance in Allowance for Doubtful Accounts of $30,000. During 2022, the following transactions occurred: sales on account $1,558,000; sales returns and allowances, $171,000; collections from customers, $1,257,000; accounts written off, $39,000; previously written off accounts of $9,000 were collected. Journalize the 2022 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation...

The December 31, 2018 balance sheet of Jenson Company had Accounts Receivable of $450,000 and a...

The December 31, 2018 balance sheet of Jenson Company had Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2019, the following transactions occurred: Sales on account $1,600,000 Sales returns and allowances, $75,000 Collections from customers, $1,450,000 Accounts written off $35,000 Previously written off accounts of $6,000 were collected (a) Journalize the 2019 transactions. Disregard any impact on inventory. (b) If Jenson uses the percentage of sales basis to estimate bad debts expense...

The December 31, 2016, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and...

The December 31, 2016, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2017, the following transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected. Journalize the 2017 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation...

The December 31, 2021, balance sheet of the Vaughn Manufacturing had Accounts Receivable of $730,000 and...

The December 31, 2021, balance sheet of the Vaughn Manufacturing had Accounts Receivable of $730,000 and a credit balance in Allowance for Doubtful Accounts of $34,000. During 2022, the following transactions occurred: sales on account $1,559,000; sales returns and allowances, $130,000; collections from customers, $1,340,000; accounts written off, $38,000; previously written off accounts of $9,000 were collected. Journalize the 2022 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation...

The December 31, 2017 balance sheet of Barone Company had Accounts Receivable of $400,000 and a...

The December 31, 2017 balance sheet of Barone Company had Accounts Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of $32,000. During 2018, the following transactions occurred: sales on account $1,500,000; sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off $36,000; previously written off accounts of $6,000 were collected. If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 8%...

Name________________________________ The December 31, 2016 balance sheet of Benson Company had Accounts Receiv

Name________________________________ The December 31, 2016 balance sheet of Benson Company had Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2017, the following transactions occurred: Sales on account $1,600,000 Sales returns and allowances, $75,000 Collections from customers, $1,450,000 Accounts written off $35,000 Previously written off accounts of $6,000 were collected (a) Journalize the 2017 transactions. Disregard any impact on inventory. (6 points) Date Account Titles Debit Credit (b) If Benson uses...

The December 31, 2021, balance sheet of the Swifty Corporation had Accounts Receivable of $680,000 and...

The December 31, 2021, balance sheet of the Swifty Corporation had Accounts Receivable of $680,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2022, the following transactions occurred: sales on account $1,554,000; sales returns and allowances, $166,000; collections from customers, $1,253,000; accounts written off, $38,000; previously written off accounts of $9,000 were collected. Journalize the 2022 transactions. AND If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible...

Larkspur Inc. had the following balance sheet at December 31, 2016. LARKSPUR INC. BALANCE SHEET DECEMBER...

Larkspur Inc. had the following balance sheet at December 31, 2016. LARKSPUR INC. BALANCE SHEET DECEMBER 31, 2016 Cash $ 20,990 Accounts payable $ 30,990 Accounts receivable 22,190 Notes payable (long-term) 41,990 Investments 32,990 Common stock 100,990 Plant assets (net) 81,000 Retained earnings 24,190 Land 40,990 $ 198,160 $ 198,160 During 2017, the following occurred. 1. Larkspur Inc. sold part of its investment portfolio for $ 15,071. This transaction resulted in a gain of $ 3,471 for the firm. The...

Question