Question

The following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2021:

	Penske					Stanza
Revenues	$	(818,000	)			$	(756,000	)
Cost of goods sold		291,300					189,000
Depreciation expense		208,000					272,000
Investment income		Not given					0
Dividends declared		80,000					60,000
Retained earnings, 1/1/21		(750,000	)				(360,000	)
Current assets		414,000					588,000
Copyrights		1,060,000					550,500
Royalty agreements		662,000					1,138,000
Investment in Stanza		Not given					0
Liabilities		(502,000	)				(1,401,500	)
Common stock		(600,000	)	($20 par)			(200,000	)	($10 par)
Additional paid-in capital		(150,000	)				(80,000	)

Note: Parentheses indicate a credit balance.

On January 1, 2021, Penske acquired all of Stanza’s outstanding stock for $929,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition, copyrights (with a six-year remaining life) have a $616,000 book value but a fair value of $706,000.

1. As of December 31, 2021, what is the consolidated copyrights balance?

2. For the year ending December 31, 2021, what is consolidated net income?

3. As of December 31, 2021, what is the consolidated retained earnings balance?

4. As of December 31, 2021, what is the consolidated balance to be reported for goodwill?

Answer 1

Ans.

Selected account balances from Penske Company and Stanza Corporation as of December 31, 2021

		Amounts
a.	Consolidated copyrights	$1,685,500
b.	Consolidated net income	$598,700
c.	Consolidated retained earnings	$1,268,700
d.	Consolidated goodwill	$199,000

Working Notes:

a.

Consolidated Copyrights

	Amount
Penske book value	$1,060,000
Stanza vook value	$550,500
Add: Allocation (W. Note 1)	$90,000
Less: Excess amortization, 2021 (W. Note 1)	$15,000
Consolidated copyrights	$1,685,500

Working Note: 1

	Amount
Fair value of copyright	$706,000
Less: Book value	$616,000
Excess fair value allocated of copyrights	$90,000
Copyrights remaining life	6 years
Excess amortization, 2021 ($90,000 / 6 years)	$15,000

b.

Consolidated Net Income

	Amount	Amount
Revenues ($818,000 + $756,000)		$1,574,000
Expenses:
Add book value ($291,300 + $189,000 + $208,000 + $272,000)	$960,300
Excess amortization, 2021 (W. Note 1)	$15,000	$975,300
Consolidated net income		$598,700

c.

Consolidated Retained Earnings

	Amounts
Retained earnings 1/1/21 (penske)	$750,000
Add: Net income	$598,700
Less: Dividend declared (penske)	$80,000
Consolidated retained earnings	1,268,700

d.

Consolidated Goodwill

	Amount	Amount
Fair value of stanza acquistion		$929,000
Book value of stanza:
Stockholders' equity balances
Retained earnings 1/1/21	$360,000
Common stock	$200,000
Additional paid-in capital	$80,000	$640,000
Fair value in excess of book value		$289,000
Excess fair value allocated to copyrights based on fair value (W. Note 1)		$90,000
Consolidated goodwill		$199,000