Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2017, by issuing 10,500 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 $110,750. However, its equipment (with a five-year remaining life) was undervalued by $8,850 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $37,900, 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, 2017:

	Haynes			Turner
Revenues	$	(686,000	)	$	(318,000	)
Expenses		490,000			149,000
Investment income		Not given			0
Dividends declared		100,000			80,000

The following balances come from the individual accounting records of these two companies as of December 31, 2018:

	Haynes			Turner
Revenues	$	(799,000	)	$	(390,000	)
Expenses		516,000			180,500
Investment income		Not given			0
Dividends declared		110,000			60,000
Equipment		571,000			359,000

a. What balance does Haynes’s Investment in Turner account show on December 31, 2018, when the equity method is applied?

b. What is the consolidated net income for the year ending December 31, 2018?

c-1. What is the consolidated equipment balance as of December 31, 2018?

c-2. Would this answer be affected by the investment method applied by the parent?

d. Prepare entry *C for the beginning of the Retained Earnings account on a December 31, 2018 by using initial value, partial equity and equity method

a. Investment in Turner account b. Consolidated net income c-1. Consolidated equipment c-2. Would this answer be affected by the investment method applied by the parent?

d.

	Date Accounts Debit Credit December 31, 2018

Answer 1

a).
Acquisition fair value (10,500 * $15)	157500
Book value of Turner Co.	110750
Excess amount paid	46750
Undervalued amount of Equipment	8850	5 Years	1770
Unrecorded Asset (Customer List)	37900	10 Years	3790
			5560

Particulars	Amount ($)
Acquisition Fair Value	157500
Income accrued in 2017 ($318000-$149000)	169000
(-) Dividends paid in 2017	-80000
(-) Amortisations for 2017	-5560
2014>>	240940
Income accrued in 2018 ($390000-$180500)	209500
(-) Dividends paid in 2018	-60000
(-) Amortisations for 2018	-5560
2015>>	625820
Investment balance	3,81,710

b)Consolidated Net Income for the year ending 31-12-2018
Particulars	Amount ($)
Net Income of Haynes (Rev - Exp)	283000
Net Income of Turner (Rev - Exp)	209500
Less: Depreciation of Machinery	-1770
Less: Amortisation Expense	-3770
Consolidated Net Income	486960

c).
Particulars	Amount ($)
Equipment balance of Haynes	571000
Equipment balance of Turner	359000
Add: Equipment on basis of fair value	8850
Less: Depreciation ($1,770* 2 years)	-3540
Consolidated Equipment balance as on 31-12-2018	935310

d).

Choice of Investment methods has no impact on consolidated balances.

So, answer is "NO