Question
In: Accounting
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 | ) | |
-
Which investment method did Patrick use to compute the $286,570 income from O'Brien?
-
Determine the totals to be reported for this business combination for the year ending December 31.
-
Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1 for $711,300...
Patrick Corporation acquired 100 percent of O’Brien Company’s
outstanding common stock on January 1 for $711,300 in cash. O’Brien
reported net assets with a carrying amount of $396,000 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)
$
107,000
$
299,000
Customer relationships (5-year remaining life)
0
104,400
Equipment (10-year remaining life)
393,000
340,800
Any goodwill is...
Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $653,100...
Patrick Corporation acquired 100 percent of O’Brien Company’s
outstanding common stock on January 1, for $653,100 in cash.
O’Brien reported net assets with a carrying amount of $389,000 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)
$
84,000
$
217,000
Customer relationships (5-year remaining life)
0
102,000
Equipment (10-year remaining life)
364,000
316,000
Any goodwill is...
Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $796,500...
Patrick Corporation acquired 100 percent of O’Brien Company’s
outstanding common stock on January 1, for $796,500 in cash.
O’Brien reported net assets with a carrying amount of $448,000 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) $ 102,000 $ 299,000 Customer relationships
(5-year remaining life) 0 96,600 Equipment (10-year remaining life)
359,000 329,000 Any goodwill is...
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Debit
Credit
Accounts payable
$
51,900
Accounts receivable
$
43,100
Additional paid-in capital
50,000
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175,000
Cash and short-term investments
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Common stock
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Inventory
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Land
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