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In: Accounting

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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