Question

On December 31, 2017 Potter and Hogwarts had the following balance sheets

Income statements

Potter Hogwarts

revenue 5,000,000 80,000

depreciation expense equip 100000 10000

Note: the building, equipment and patent of Hogwarts depreciation expense bldg 200,000 10,000 each have a 10 year remaining life with no salvage and amortization exp patent 5000 5000 straight line depreciation is used.

investment income A 0

income B 55,000

Potter Hogwarts

cash 3,000,000 100,000

equipment 1,000,000 100,000

a/d equip 200,000 20,000

Land 2,000,000 20,000

building 3,000,000 100,000

a/d building 1,200,000 40,000

patent 45,000 45,000

Investment in Hogwarts C 0

total assets D 305,000

accounts payable 1,000,000 40,000

notes payable 1,000,000 40,000

common stock $5 par E 150,000 The only stock transaction Potter had in 2017 was the purchase of Hogwarts

apic c/s F 0

r/e G 75,000

Remember, On January 2nd Potter acquired all of the stock of Hogwarts by issuing 50,000 shares of common stock when the stock was selling for $11 per share. At that time the fair market value of Hogwarts assets were: equipment

Land 60,000

building 30,000

patent 110,000

40,000

REQUIRED:

A) MAKE THE JOURNAL ENTRY POTTER MAKES CONNECTED WITH ITS INVESTMENT IN HOGWARTS (YOU DO NOT HAVE TO MAKE THE ENTRY OF JAN. 2 ACQUIRING THE COMPANY)

B) FILL IN THE ANSWERS FOR A THROUGH G LET ME KNOW WHAT METHOD (INITIAL VALUE, EQUITY, PARTIAL EQUITY) YOU ARE USING

C) MAKE ANY NECESSARY WORKSHEET ENTRIES

D) PREPARE A CONSOLIDATED BALANCE SHEET ON 12/31/2017

E) PREPARE A CONSOLIDATED INCOME STATEMENT FOR 2017

HINT: DON'T FORGET ABOUT DIVIDENDS THAT HOGWARTS AND/OR POTTER MAY HAVE PAID.

Answer 1

In question, total assets given as 3,05,000 , but as add up make it as 4,25,000, thus removing by Building Cost 1,00,000 and Add. Equipemnt 20,000 make it feasible sum, and solution on that part. Revalued of 40,000 is not specified, thus remaining in sum is Equipment only, as cash value can't be revalued.

Figure in Potter Balance Are wrong, thus its has to be first corrected and then Point 3, 4 can be solved.

Net Assets

Particular	Amount
Land	60,000
Building	30,000
Patent	1,10,000
Cash	1,00,000
Equipment	40,000
Total Assets (A)	3,40,000
Deducted :
Accounts Payable	40,000
Notes Payable	40,000
Total Liablites (A)	80,000
Net Assets (A-B)	2,60,000

Thus Goodwill will be booked in Potter,

Net Assets Dr. 2,60,000

Goodwill Dr. 2,90,000

To Purchase Acquisation Cr. 5,50,000

Particular	Amount	Particular	Amount
		Goodwill	2,90,00
		Land
		Building
		Equipment
		Patent
		Cash