Question

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

	Penske					Stanza
Revenues	$	(702,000	)			$	(668,000	)
Cost of goods sold		250,700					167,000
Depreciation expense		222,000					312,000
Investment income		Not given					0
Dividends declared		80,000					60,000
Retained earnings, 1/1/18		(654,000	)				(284,000	)
Current assets		406,000					606,000
Copyrights		998,000					402,000
Royalty agreements		654,000					1,136,000
Investment in Stanza		Not given					0
Liabilities		(586,000	)				(1,451,000	)
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 $815,000 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 $498,000 book value but a fair value of $630,000.

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

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

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

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

Please show your calculations, thanks. I need all parts to be answered, thanks,

Answer 1

Part 1

Consolidated copyrights

Penske (book value) = 998000

Stanza (book value) = 402000

Allocation = 132000 (630000-498000)

Excess amortizations, 2018 = (22000) (132000/6)

Total = 1510000

Part 2

Consolidated net income, 2018

Revenues (add book values) = $1370000 (702000+668000)

Expenses:

Add book values = $951700 (250700+167000+222000+312000)

Excess amortizations = 22,000

Total expenses = 973700

Consolidated net income = $396300

Part 3

Consolidated retained earnings, 12/31/18

Retained earnings1/1/18 (Penske)= $654,000

Net income 2015 (above) = 396300

Dividends declared2015 (Penske) = (80,000)

Total = $970300

Part 4

Goodwill

Stanza acquisition fair value = $815,000

Book value of subsidiary (1/1/15stockholders'equitybalances) = 564000 (200000+80000+284000)

Fair value in excess of book value = 251000

Excess fair value allocated to copyrights based on fair value = (132000) (630000-498000)

Goodwill = 119000