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Problem 3-28 (LO 3-1, 3-3a) Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock...

Problem 3-28 (LO 3-1, 3-3a)

Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $653,400 in cash. O’Brien reported net assets with a carrying amount of $393,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:

Book
Values		 Fair
Values
Trademarks (indefinite life) $ 94,500 $ 238,500
Customer relationships (5-year remaining life) 0 75,000
Equipment (10-year remaining life) 352,000 310,300

Any goodwill is considered to have an indefinite life with no impairment charges during the year.

Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses.

Patrick O'Brien
Revenues $ (1,725,000 ) $ (676,000 )
Cost of goods sold 460,000 306,000
Depreciation expense 104,400 72,600
Amortization expense 34,800 0
Income from O'Brien (286,570 ) 0
Net income $ (1,412,370 ) $ (297,400 )
Retained earnings 1/1 $ (796,000 ) $ (340,000 )
Net income (1,412,370 ) (297,400 )
Dividends declared 167,000 105,000
Retained earnings 12/31 $ (2,041,370 ) $ (532,400 )
Cash $ 203,000 $ 154,500
Receivables 294,000 74,700
Inventory 181,000 205,000
Investment in O'Brien 881,970 0
Trademarks 516,000 69,900
Customer relationships 0 0
Equipment (net) 932,000 324,000
Goodwill 0 0
Total assets $ 3,007,970 $ 828,100
Liabilities $ (566,600 ) $ (195,700 )
Common stock (400,000 ) (100,000 )
Retained earnings 12/31 (2,041,370 ) (532,400 )
Total liabilities and equity $ (3,007,970 ) $ (828,100 )

  1. Which investment method did Patrick use to compute the $286,570 income from O'Brien?

  2. Determine the totals to be reported for this business combination for the year ending December 31.

  3. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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