Question

In: Accounting

Problem A - SHOW CALCULATIONS Pattern Corporation acquired all of Science Company's outstanding stock on January...

Problem A - SHOW CALCULATIONS
Pattern Corporation acquired all of Science Company's outstanding stock on January 1, 2016 for $600,000 cash. Science Company's
accounting records showed net assets on that date of $470,000 although equipment with a 10-year remaining life was undervalued
on the records by $90,000. Any recognized goodwill is considered to have an indefinite life. Science Company reports net income
in 2016 of $90,000 and $100,000 in 2017. The subsidiary declared dividends of $20,000 in each of these two years.
The trial balances for each company for the year ending December 31, 2018 are below:
Unconsolidated       Entries
     Pattern   Science    C   S A   I D    E Consolidated
Current assets          300,000      100,000   
Equipment          900,000      600,000
Building          800,000      400,000
Land          600,000      100,000
Goodwill   
Invest in sub          600,000                     203,000
Liabilities        (900,000)    (500,000)
Common Stock        (900,000)    (300,000)
Dividends          120,000         20,000
Retained Earnings 1/1/18    (1,100,000)    (320,000)    (132,000)
Revenues        (800,000)    (500,000)
CGS          100,000      150,000
Depreciation          300,000      250,000
Investment Inc          (20,000)                 -   (71,000)
Totals (should be zero in each column)                    -                   -                   -                  -                  -                 -                -                -                       -  
a.  Complete the consolidating schedule above to consolidate the trial balances. Note that the first entry "C" has already been completed for you.
b.  How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)?
c.  Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?
d.  If the parent company had used a different method of accounting for this investment, how could that method have been identified?
e.  What would be Pattern's balance for retained earnings as of January 1, 2018, if each of the following methods had been in use?
Initial value method, Partial equity method, Equity method

Solutions

Expert Solution

Unconsolidated

      Entries

     Pattern

  Science

   C

  S

A

  I

D

   E

Consolidated

Current assets

300000

100000

400000

Equipment

900000

600000

72000

(9000)

1563000

Building

800000

400000

1200000

Land

600000

100000

700000

Goodwill

40000

40000

Invest in sub

600000

132000

(620000)

(112000)

(20000)

20000

0

Liabilities

(900000)

(500000)

(1400000)

Common Stock

(900000)

(300000)

300000

(900000)

Dividends

120000

20000

(20000)

120000

Retained Earnings 1/1/18

(1100000)

(320000)

(132000)

(1552000)

Revenues

(800000)

(500000)

(1300000)

CGS

100000

150000

250000

Depreciation

300000

250000

9000

559000

Investment Inc

(20000)

20000

0

Depreciation expense = 300000+250000+(90000/10)=$559000

Depreciation expense =$559000

Dividends declared = book value of Pattern = 120000

Revenues = 800000+500000=$1300000

Equipment= 900000+600000+90000-(90000/10*3) = 1563000

Buildings= 800000+400000=$120000

Goodwill= 600000-470000-90000=40000

Common stock = book value of Pattern = 900000

Part B

No, doesn't affect consolidated totals but only internal reporting of parent.

The parent's choice for accounting methods for its investment does not affect the consolidated balances of depreciation, dividends declared, equipment, revenue, common stock, goodwill, buildings, revenues.

Part C

Initial value method

Currently, the parent company is currently using the initial value method for reporting. The parent's investment investment in subsidiary is equal to $600000 which is its original cost. Moreover investment income is equal to dividends declared by subsidiary.

Part D

The utilization of partial equity method would have indicated the investment income account at only an equity accrual of $132,000. The utilization of equity method would have indicated the investment income account at both the equity accrual of $132,000 and excess amortizations of $9,000 for a balance of $123000

Part E

Retained earnings

Initial value method

$1100000

Partial equity method

$1250000

Equity method

$1232000

Initial value method = $1190000

Partial equity method = 1100000+90000+100000-(20000*2) = $1250000

Equity method = 1100000+90000+100000-(20000*2)-(90000/10*2)

-------------------------------

-------------------------------

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,305,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,105,000 including retained earnings of $1,605,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,305,500 Mathias stockholders' equity 2,105,000 Excess fair...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,039,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,040,000 including retained earnings of $1,540,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,039,000 Mathias stockholders' equity 2,040,000 Excess fair over...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,125,000 including retained earnings of $1,625,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,387,500 Mathias stockholders' equity 2,125,000 Excess fair over...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,125,000 including retained earnings of $1,625,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,387,500 Mathias stockholders' equity 2,125,000 Excess fair over...
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff,...
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $7,467,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,549,500 including retained earnings of $1,749,500. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,162,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,070,000 including retained earnings of $1,570,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,162,000 Mathias stockholders' equity 2,070,000 Excess fair...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,957,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,020,000 including retained earnings of $1,520,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 5,957,000 Mathias stockholders' equity 2,020,000 Excess fair over...
On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff,...
On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $7,793,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,560,500 including retained earnings of $1,760,500. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had...
PACE Corporation acquired all of the outstanding common stock of LINK Inc. on January 1, 2016...
PACE Corporation acquired all of the outstanding common stock of LINK Inc. on January 1, 2016 in exchange for for 20,000 shares of PACE Corp's $10 par value Common Stock that was trading at $50 a share on that date. LINK Inc.'s accounting records showed a net book value on that date of $600,000: Common Stock 200,000 Retained Earnings 400,000 Total Equity 600,000 Equipment on the LINK's books with a 5-year life was undervalued by $150,000. Any additional excess fair...
oxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2019, for $586,000 cash....
oxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2019, for $586,000 cash. Greenburg’s accounting records showed net assets on that date of $440,000, although equipment with a 10-year remaining life was undervalued on the records by $56,500. Any recognized goodwill is considered to have an indefinite life. Greenburg reports net income in 2019 of $105,000 and $137,500 in 2020. The subsidiary declared dividends of $20,000 in each of these two years. Account balances for the year...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT