Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2020, by issuing 11,100 shares of $10 par value common stock. Haynes’s shares had a $15 per share fair value. On that date, Turner reported a net book value of $128,150. However, its equipment (with a five-year remaining life) was undervalued by $5,950 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $32,400, although no value had been recorded on Turner’s books. The customer list had an estimated remaining useful life of 10 years.

The following balances come from the individual accounting records of these two companies as of December 31, 2020:

	Haynes			Turner
Revenues	$	(713,000	)	$	(327,000	)
Expenses		535,000			139,000
Investment income		Not given			0
Dividends declared		90,000			90,000

The following balances come from the individual accounting records of these two companies as of December 31, 2021:

	Haynes			Turner
Revenues	$	(869,000	)	$	(381,000	)
Expenses		564,400			177,600
Investment income		Not given			0
Dividends declared		110,000			80,000
Equipment		597,000			371,000

1. a. What balance does Haynes’s Investment in Turner account show on December 31, 2021, when the equity method is applied?

2. d. Prepare entry *C for the beginning of the Retained Earnings account on a December 31, 2021 by using initial value, partial equity and equity method.

Answer 1

Solution:

a)

Calculation of investment in company Tuner's account:

Calculate the face value of Haynes company obtained from Tuners company =11,100*15

=$166,500

Tuners company reported the book value =$128,150

Excess face value = $166,500-$128,150

=$38,350

The equipment has five years remaining = $5,950/5 =$1,190

Customers list has 10 year=$32,400/10 =$3,240

total =$1,190+$3,240 =$4,430

Calculation of accrual income 2020 =$327,000 -$139,000 =$188,000

Calculation of accrual income 2021 =$381,000 -$177,600 =$203,400

Investment in company Tuner's account=$166,500+$188,000+$203,400-$90,000-$80,000-$4,430-$4,430

Investment in company Tuner's account =$379,040

d)

Date	Particulars	Debit	Credit
2021 Dec 31	Investment in Turner	$93,570
	Retained earnings($188,000 -90,000 -$4,430)		$93,570
2021 Dec 31	Reatined earnings (1/1/2021)	$4,430
	Investment in Turner		$4,430
2021 Dec 31	No entry required

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