Question
In: Accounting
Link Company acquired Tuna Inc. on January 1, 2017. On January 1, 2017 all of Tuna's...
Link Company acquired Tuna Inc. on January 1, 2017. On January 1, 2017 all of Tuna's assets and liabilities had a FVs = BV except for the following:
Land was undervalued by $30,000
Buildings were overvalued by $45,000 (20-yr remaining useful life)
Equipment was undervalued by $90,000 (5-yr remaining useful life)
In addition, Tuna had internally developed a customer list with an appraised value of $150,000 and a 10-yr remaining useful life. Link originally acquired Tuna at the FV of its net identifiable assets that equaled $1,050,000.
The following are selected accounts for Link's Company and Tuna Inc as of December 31, 2021 ( Link's investment in Tuna and equity in Tuna's income accounts have been omitted). Credit balances are indicated by parenthesis:
| Link | Tuna | |
| Revenues | (900,000) | (375,000) |
| COGS | 420,000 | 150,000 |
| Depreciation Exps | 180,000 | 75,000 |
| RE, Beginning Balance | (1,350,000) | (900,000) |
| Dividends Paid | 195,000 | 60,000 |
| Current Assets | 300,000 | 1,035,000 |
| Land | 450,000 | 135,000 |
| Buildings (net) | 750,000 | 210,000 |
| Equip (net) | 300,000 | 375,000 |
| Liabilities | (600,000) | (465,000) |
| Common Stock | (450,000) | (60,000) |
| APIC | (75,000) | (240,000) |
Determine the proper December 31, 2021 consolidated totals for each of the following accounts:
Revenues, COGS, Depreciation Exps, Amortization Exps, Buildings net, Equipment net, Customer list, Common Stock, APIC.
Show work please!
Solutions
Expert Solution
| Proper consolidated totals for the required accounts are as follows : | ||||
| Account | Link | Tuna | Consolidated Total | Working Reference |
| Revenue | 9,00,000 | 3,75,000 | 12,75,000 | |
| COGS | 4,20,000 | 1,50,000 | 5,70,000 | |
| Depreciation Expense | 1,80,000 | 90,750 | 2,70,750 | Note 1 |
| Amortization Exp | - | 15,000 | 15,000 | Note 2 |
| Buildings net | 7,50,000 | 1,76,250 | 9,26,250 | Note 3 |
| Equipment net | 3,00,000 | 3,75,000 | 6,75,000 | Note 4 |
| Customer List | - | 75,000 | 75,000 | Note 5 |
| Common Stock | 4,50,000 | - | 4,50,000 | |
| APIC | 75,000 | - | 75,000 | |
| Note 1 : Depreciation Expense : | ||||
| Depreciation exp for Tuna | 75,000 | |||
| Less : Excess Depreciation on overvalued building | -2,250 | |||
| Add : Depreciation to be charged on undervalued Equipment | 18,000 | |||
| Correct Depreciation expense for Tuna | 90,750 | |||
| Note 2 : Amortization Expense : | ||||
| Appraised Value of Customer list | 1,50,000 | |||
| Useful life | 10 years | |||
| Amortization every year for 10 years | 15,000 | |||
| Note 3 : Buildings net | ||||
| Current value of Building | 2,10,000 | |||
| Less : Overvalued portion | -45,000 | |||
| Add : Depreciation charged over the years for overvalued portion for 5 years | 11,250 | |||
| Correct Value of Building | 1,76,250 | |||
| Note 4 : Equipment net | ||||
| Current value of Equipment | 3,75,000 | |||
| Less : Undervalued portion | -90,000 | |||
| Add : Depreciation not charged over the years on undervalued portion | 90,000 | |||
| Correct Value of Equipment | 3,75,000 | |||
| Note 5 : Customer List : | ||||
| Appraised Value of Customer list on 1st January, 2017 | 1,50,000 | |||
| Less : Amortizatrion for 5 years | -75,000 | |||
| Customer List value as on 31st December, 2021 | 75,000 | |||
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