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In: Accounting

On December 31, 20X6, Greenly Corporation and Lindy Company entered into a business combination in which...

On December 31, 20X6, Greenly Corporation and Lindy Company entered into a business combination in which Greenly acquired all of Lindy’s common stock for $957,000. At the date of combination, Lindy had common stock outstanding with a par value of $117,000, additional paid in capital of $412,000, and retained earnings of $175,000. The fair values and book values of all Lindy’s assets and liabilities were equal at the date of combination, except for the following:

Book Value Fair Value
  Inventory $ 56,000 $ 61,000
  Land 90,000 170,000
  Buildings 412,000 515,000
  Equipment 515,000 580,000

The buildings had a remaining life of 20 years, and the equipment was expected to last another 10 years. In accounting for the business combination, Greenly decided to use push-down accounting on Lindy’s books.

During 20X7, Lindy earned net income of $99,000 and paid a dividend of $68,000. All of the inventory on hand at the end of 20X6 was sold during 20X7. During 20X8, Lindy earned net income of $101,000 and paid a dividend of $68,000.

Required:

a.

Record the acquisition of Lindy's stock on Greenly's books on December 31, 20X6. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the initial investment in Lindy Co.

b.

Record any entries that would be made on December 31, 20X6, on Lindy’s books related to the business combination if push-down accounting is employed. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the evaluation of the assets of Lindy Co.

c.

Present all consolidating entries that would appear in the worksheet to prepare a consolidated balance sheet immediately after the combination. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the basic consolidation entry.

d.

Present all entries that Greenly would record during 20X7 related to its investment in Lindy if Greenly uses the equity-method of accounting for its investment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the dividend received from Lindy Co.

e.

Present all consolidating entries that would appear in the worksheet to prepare a full set of consolidated financial statements for the year 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the basic consolidation entry.

f.

Present all consolidating entries that would appear in the worksheet to prepare a full set of consolidated financial statements for the year 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

*Record the basic consolidation entry.

Solutions

Expert Solution

Part A

Account titles debit credit
Investment in Lindy Company stock 957000
Cash 957000

Part B

Credit debit
Inventory (61000-56000) 5000
Land (170000-90000) 80000
Buildings (515000-412000) 103000

Equipment (580000-515000)

Revaluation capital

65000

253000

Part C

Accounts title and explanation debit credit
Capital stock - Lindy Company 117000
Additional paid in capital 412000
Retained earnings 175000
Revaluation capital 253000
Investment in Lindy Company stock 957000

Part D

Accounts title and explanation debit credit
Cash 68000
Investment in Lindy Company stock 68000
Record dividend from Lindy Company
Investment in Lindy Company stock 99000
Income from Lindy Company 99000
Record equity - method income

Part E

Accounts title and explanation debit credit
Capital stock - Lindy Company 117000
Additional paid in capital 412000
Retained earnings Jan 1 175000
Revaluation capital 253000
Income from Lindy Company 99000

Dividends declared

Investment in Lindy Company stock (balancing figure)

68000

98800p

Part F

Accounts title and explanation debit credit
Common Stock - Lindy Company 117000
Additional paid in capital 412000
Retained earnings Jan 1 (175000+99000-68000) 206000
Revaluation capital 253000
Income from Lindy Company 101000
Dividends declared 68000
Investment in Lindy Company stock (balancing figure) 1021000

ekkarill92 answered 1 year ago
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