Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several...

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted.

	Green		Vega
Revenues	$	900,000	$	500,000
Cost of goods sold		360,000		200,000
Depreciation expense		140,000		40,000
Other expenses		100,000		60,000
Equity in Vega’s income		?
Retained earnings, 1/1/2023		1,350,000		1,200,000
Dividends		195,000		80,000
Current assets		300,000		1,380,000
Land		450,000		180,000
Building (net)		750,000		280,000
Equipment (net)		300,000		500,000
Liabilities		600,000		620,000
Common stock		450,000		80,000
Additional paid-in capital		75,000		320,000

Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.

Compute the December 31, 2023 consolidated retained earnings.

a.$1,350,000.

b.$1,645,375.

c.$1,565,375.

d.$1,265,375.

e.$1,840,375.

I know the answer is B but need explanation as to how to get the answer.

Solutions

Expert Solution

Computation of net income	Green	Vega
Revenues	900,000	500,000
Less: Cost of goods sold	360,000	200,000
Depreciation	140,000	40,000
Other expenses	100,000	60,000
Depreciation reversed on corrected building (30,000/20)		(1500)
Depreciation on correct equipment (80,000/10)		8000
Amortization of unrecorded trademark (50,000/16)		3125
Net income	300,000	190,375


Consolidated retained earnings
Beginning retained earnings	$ 1350,000
Add: Vega income	190,375
Add: Green income	300,000
Less: dividends	(195,000)
Consolidated retained earnings	1,645,375

Buildings were overvalued. Hence, some of the depreciation needs to be reversed.

In case of equipment and trademark, depreciation and amortization shall be applicable.

ekkarill92 answered 1 year ago

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