ADV. ACCT CONNECT STAND ALONE
13th Edition
ISBN: 9781266295744
Author: Hoyle
Publisher: MCG
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Question
Chapter 3, Problem 25P
a.
To determine
Determine December 31, 2018, Investment in Company M balance.
a.
Expert Solution
Explanation of Solution
Investment in Company M balance:
| Particulars | Amount | |
| Consideration transferred | $ 5,875,000 | |
| Equity in Company M | ||
| 2017 | $ 150,000 | |
| 2018 | $ 630,000 | |
| Post-acquisition earnings | $ 780,000 | |
| Dividends of Company M | $ (75,000) | |
| Investment balance on 31/12/2018 | $ 6,580,000 | |
| Excess acquisition fair value: | ||
| Unpatented technology | $ 100,000 | |
| Patents | $ 250,000 | |
| Long term debt | $ (20,000) | |
| Annual amortization | $ 330,000 |
Table: (1)
b.
To determine
Prepare a worksheet to determine the consolidated values to be reported on Company A’s financial statements.
b.
Expert Solution
Explanation of Solution
Worksheet to determine the consolidated values to be reported on Company A’s financial statements:
| Income statement | Company A | Company M | Debit($) | Credit($) | Consolidated Balances |
| Revenues | $ (6,400,000) | $ (3,900,000) | $ (10,300,000) | ||
| Cost of goods sold | $ 4,500,000 | $ 2,500,000 | $ 7,000,000 | ||
| Depreciation expense | $ 875,000 | $ 277,000 | $ 1,152,000 | ||
| Amortization expense | $ 430,000 | $ 103,000 | E 350,000 | $ 883,000 | |
| Interest expense | $ 55,000 | $ 60,000 | E 20,000 | $ 95,000 | |
| Equity earnings from Company M | $ (630,000) | I 630,000 | $ - | ||
| Net income | $ (1,170,000) | $ (960,000) | $ (1,170,000) | ||
| Balance Sheet | |||||
| Current assets | $ 75,000 | $ 143,000 | $ 218,000 | ||
| $ 950,000 | $ 225,000 | $ 1,175,000 | |||
| Inventories | $ 1,700,000 | $ 785,000 | $ 2,485,000 | ||
| Investment in Company M | $ 6,580,000 | $ - | D 50,000 | $ 2,455,000 | |
| A 3,545,000 | $ - | ||||
| I 630,000 | |||||
| Equipment | $ 3,700,000 | $ 2,052,000 | $ 5,752,000 | ||
| Patents | $ 95,000 | A 2,250,000 | E 250,000 | $ 2,095,000 | |
| Unpatented technology | $ 2,125,000 | $ 1,450,000 | A 700,000 | E 100,000 | $ 4,175,000 |
| $ 425,000 | $ - | A 675,000 | $ 1,100,000 | ||
| Total assets | $ 15,650,000 | $ 4,655,000 | $ 17,000,000 | ||
| Accounts payable | $ (500,000) | $ (90,000) | $ (590,000) | ||
| Long term debt | $ (1,000,000) | $ (1,200,000) | E 20,000 | A 80,000 | $ (2,260,000) |
| Common stock | $ (8,200,000) | $ (500,000) | $ 500,000 | $ (8,200,000) | |
| $ (5,950,000) | $ (2,865,000) | $ (5,950,000) | |||
| Total liabilities and equity | $ (15,650,000) | $ (4,655,000) | $7,130,000 | $ 7,130,000 | $ (17,000,000) |
Table: (2)
Working note:
| Statement of retained earnings | Company A | Company M | Debit | Credit | Consolidated Balances |
| Retained earnings on 01/01 | $ (5,340,000) | $ 1,955,000 | $1,955,000 | $ (5,340,000) | |
| Net Income | $ (1,170,000) | $ (960,000) | $ (1,170,000) | ||
| Dividends declared | $ 560,000 | $ 50,000 | D 50.000 | $ 560,000 | |
| Retained earnings on 31/12 | $ (5,950,000) | $ (2,865,000) | $ (5,950,000) |
Table: (3)
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Chapter 3 Solutions
ADV. ACCT CONNECT STAND ALONE
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