Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2017, by issuing 11,100 shares of $10 par value common stock. Haynes’s shares had a $15 per share fair value. On that date, Turner reported a net book value of $128,150. However, its equipment (with a five-year remaining life) was undervalued by $5,950 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $32,400, although no value had been recorded on Turner’s books. The customer list had an estimated remaining useful life of 10 years.

The following balances come from the individual accounting records of these two companies as of December 31, 2017:

	Haynes			Turner
Revenues	$	(713,000	)	$	(327,000	)
Expenses		535,000			139,000
Investment income		Not given			0
Dividends declared		90,000			90,000

The following balances come from the individual accounting records of these two companies as of December 31, 2018:

	Haynes			Turner
Revenues	$	(869,000	)	$	(381,000	)
Expenses		564,400			177,600
Investment income		Not given			0
Dividends declared		110,000			80,000
Equipment		597,000			371,000

1. a. What balance does Haynes’s Investment in Turner account show on December 31, 2018, when the equity method is applied?

2. b. What is the consolidated net income for the year ending December 31, 2018?

3. c-1. What is the consolidated equipment balance as of December 31, 2018?

4. c-2. Would this answer be affected by the investment method applied by the parent?

5. d. Prepare entry *C for the beginning of the Retained Earnings account on a December 31, 2018 by using initial value, partial equity and equity method.

Answer 1