FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $713,300 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $641,000. Credit balances are indicated by parentheses.
| Adams | Clay | |||||
| Current assets | $ | 382,000 | $ | 272,000 | ||
| Investment in Clay | 713,300 | 0 | ||||
| Equipment | 837,000 | 584,000 | ||||
| Liabilities | (202,000 | ) | (224,000 | ) | ||
| Common stock | (350,000 | ) | (150,000 | ) | ||
| (1,380,300 | ) | (482,000 | ) | |||
In 2020, Clay earns a net income of $74,100 and declares and pays a $5,000 cash dividend. In 2020, Adams reports net income from its own operations (exclusive of any income from Clay) of $160,000 and declares no dividends. At the end of 2021, selected account balances for the two companies are as follows:
| Adams | Clay | |||||
| Revenues | $ | (544,000 | ) | $ | (286,000 | ) |
| Expenses | 394,400 | 214,500 | ||||
| Investment income | Not given | 0 | ||||
| Retained earnings, 1/1/21 | Not given | (551,100 | ) | |||
| Dividends declared | 0 | 8,000 | ||||
| Common stock | (350,000 | ) | (150,000 | ) | ||
| Current assets | 756,000 | 322,400 | ||||
| Investment in Clay | Not given | 0 | ||||
| Equipment | 756,500 | 622,400 | ||||
| Liabilities | (149,800 | ) | (189,800 | ) | ||
a) What are the December 31, 2021, Investment Income and Investment in Clay account balances assuming Adams uses the:
Equity method.
Initial value method.
b) What is the amount of Consolidated Expenses in its December 31, 2021, consolidated income statement under each of the following methods?
c) What is the amount of Consolidated Equipment in its December 31, 2021, consolidated
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Consolidated Statements:
Consolidated statements are reports that can be utilized when the parent organization holds a greater stake by controlling over half of the auxiliary business. The motivation behind consolidated statements is to introduce, fundamentally to assist the proprietors and lenders of the parent, the consequences of tasks and the monetary place of a parent, and each of the merged gatherings may be a solitary financial substance.
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