Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2020, by issuing 10,600 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 $123,500. However, its equipment (with a five-year remaining life) was undervalued by $5,200 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $30,300, 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	$	(715,000	)	$	(299,000	)
Expenses		530,000			145,000
Investment income		Not given			0
Dividends declared		90,000			70,000

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

	Haynes			Turner
Revenues	$	(827,000	)	$	(354,500	)
Expenses		555,300			175,400
Investment income		Not given			0
Dividends declared		100,000			50,000
Equipment		530,000			327,000

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

2. b. What is the consolidated net income for the year ending December 31, 2021?

3. c-1. What is the consolidated equipment balance as of December 31, 2021?

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

5. 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