In: Accounting
Tyler Company acquired all of Jasmine Company’s outstanding stock on January 1, 2016, for $274,700 in cash. Jasmine had a book value of only $204,900 on that date. However, equipment (having an eight-year remaining life) was undervalued by $71,200 on Jasmine’s financial records. A building with a 20-year remaining life was overvalued by $15,400. Subsequent to the acquisition, Jasmine reported the following:
Net Income | Dividends Declared | |||||
2016 | $ | 73,800 | $ | 10,000 | ||
2017 | 74,500 | 40,000 | ||||
2018 | 39,000 | 20,000 | ||||
In accounting for this investment, Tyler has used the equity
method. Selected accounts taken from the financial records of these
two companies as of December 31, 2018, follow:
Tyler Company | Jasmine Company | ||||||
Revenues—operating | $ | (430,000 | ) | $ | (195,000 | ) | |
Expenses | 215,000 | 96,500 | |||||
Equipment (net) | 462,000 | 97,500 | |||||
Buildings (net) | 340,000 | 93,600 | |||||
Common stock | (290,000 | ) | (64,500 | ) | |||
Retained earnings, 12/31/18 | (446,000 | ) | (225,000 | ) | |||
Determine the following account balances as of December 31, 2018:
A. Investment in Jasmine Company
B. Equity in Subsidiary Earnings
C. Consolidated Net Income
D. Consolidated Equipment (net)
E. Consolidated Buildings (net)
F. Consolidated Goodwill (net)
G. Consolidated Common Stock
H. Consolidated Retained Earnings 12/31/18
Part A
Schedule 1: Acquisition-Date Fair Value Allocation and Amortization
Jasmines acquisition-date fair value........ .$274700
Book value of Jasmine....... . (204900)
Fair value in excess of book value...... 69800
Excess fair value assigned to specific
accounts based on individual fair values .... Remaining life... Annual excess amortization
Equipment............ $71200................. 8 yrs................ $8900
Buildings (overvalued).....(15400)....... 20 yrs............. (770)
Goodwill.......... ... $14000........... indefinite................. 0
Total amortization......................... .......... ................$8130
Investment in Jasmine Company12/31/18:
Jasmines acquisition-date fair value........ $274700
2016 Increase in book value of subsidiary.... 63800
2016 Excess amortizations.......................... (8130)
2017 Increase in book value of subsidiary.... 34500
2017 Excess amortizations................... ....... (8130)
2018 Increase in book value of subsidiary.... 19000
2018 Excess amortizations....... . ............. ........ (8130)
Investment in Jasmine Company 12/31/18..... $367,610
Part B : Equity in subsidiary earnings:
Income accrual................... .... .. . $39,000
Excess amortizations......... .... .. .. (8130)
Equity in subsidiary earnings....... $30870
Part C: Consolidated net income:
Consolidated revenues (add book values).... $625,000
Consolidated expenses (add book values).... (311,500)
Excess amortization expenses...................... (8130)
Consolidated net income................................305370
d. Consolidated equipment:
Book values added together...................... $559500
Acquisition-date fair value allocation .........71200
Excess depreciation ($8130 × 3)............... (24390)
Consolidated equipment........................... $463910
Part E: Consolidated buildings:
Book values added together................... $433600
Acquisition-date fair value allocation..... (15400)
Excess depreciation ($770 × 3) ................2310
Consolidated buildings............................. $420510
Part F. Allocation of excess fair value to goodwill $14000
g. Consolidated common stock $290,000
h. Consolidated retained earnings $446,000