ADVANCED ACCOUNTING
13th Edition
ISBN: 9781264046263
Author: Hoyle
Publisher: MCG
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Question
Chapter 3, Problem 4DYS
a.
To determine
Compute consolidated balances for Company I and Company C.
a.
Expert Solution
Explanation of Solution
Consolidated balances for Company I and Company C:
| Income statement | Company I | Company C | Debit | Credit | Consolidated Balances |
| Revenues | $ (990,000) | $ (210,000) | $ (1,200,000) | ||
| Cost of goods sold | $ 500,000 | $ 90,000 | $ 590,000 | ||
| Depreciation expense | $ 100,000 | $ 5,000 | $ 105,000 | ||
| Amortization expense | $ 55,000 | $ 18,000 | E 20,000 | $ 93,000 | |
| Equity earnings from Company C | $ (40,000) | I 40,000 | $ - | ||
| Net income | $ (375,000) | $ (97,000) | $ (412,000) | ||
| Balance Sheet | |||||
| Current assets | $ 960,000 | $ 355,000 | $ 1,315,000 | ||
| Investment in Company C | $ 670,000 | $ - | *C 60,000 | S 580,000 | |
| A 150,000 | $ - | ||||
| Equipment | $ 765,000 | $ 225,000 | $ 990,000 | ||
| Trademark | $ 235,000 | $ 100,000 | A 36,000 | E 4,000 | $ 367,000 |
| Existing technology | $ 45,000 | A 64,000 | E 16,000 | $ 93,000 | |
| | $ 450,000 | $ - | A 50,000 | $ 500,000 | |
| Total assets | $ 3,080,000 | $ 725,000 | $ 3,265,000 | ||
| Liabilities | $ (780,000) | $ (88,000) | $ (868,000) | ||
| Common stock | $ (500,000) | $ (100,000) | S 100,000 | $ (500,000) | |
| Additional paid-in capital | $ (120,000) | $ (30,000) | S 30,000 | $ (120,000) | |
| | $ (1,680,000) | $ (507,000) | $ (1,777,000) | ||
| Total liabilities and equity | $ (3,080,000) | $ (725,000) | $ 850,000 | $ 850,000 | $ (3,265,000) |
Table: (1)
Working note:
| Statement of retained earnings | Company I | Company C | Debit | Credit | Consolidated Balances |
| Retained earnings on 01/01 | $ (1,555,000) | $ (450,000) | S 450,000 | *C 60,000 | $ (1,615,000) |
| Net Income | $ (375,000) | $ (97,000) | $ (412,000) | ||
| Dividends declared | $ 250,000 | $ 40,000 | I 40,000 | $ 250,000 | |
| Retained earnings on 31/12 | $ (1,680,000) | $ (507,000) | $ (1,777,000) |
Table: (2)
b.
To determine
Prepare a second spreadsheet that shows a 2018 impairment loss for the entire amount of goodwill from Company C acquisition.
b.
Expert Solution
Explanation of Solution
Spreadsheet that shows a 2018 impairment loss for the entire amount of goodwill from Company C acquisition:
| Income statement | Company I | Company C | Debit | Credit | Consolidated Balances |
| Revenues | $ (990,000) | $ (210,000) | $ (1,200,000) | ||
| Cost of goods sold | $ 500,000 | $ 90,000 | $ 590,000 | ||
| Depreciation expense | $ 100,000 | $ 5,000 | $ 105,000 | ||
| Amortization expense | $ 55,000 | $ 18,000 | E 20,000 | $ 93,000 | |
| Impairment loss | $ 50,000 | 50000 | |||
| Equity earnings from Company C | $ (40,000) | I 40,000 | $ - | ||
| Net income | $ (325,000) | $ (97,000) | $ (362,000) | ||
| Balance Sheet | |||||
| Current assets | $ 960,000 | $ 355,000 | $ 1,315,000 | ||
| Investment in Company C | $ 620,000 | $ - | *C 60,000 | S 580,000 | |
| A 100,000 | $ - | ||||
| Equipment | $ 765,000 | $ 225,000 | $ 990,000 | ||
| Trademark | $ 235,000 | $ 100,000 | A 36,000 | E 4,000 | $ 367,000 |
| Existing technology | $ 45,000 | A 64,000 | E 16,000 | $ 93,000 | |
| Goodwill | $ 450,000 | $ - | $ 450,000 | ||
| Total assets | $ 3,030,000 | $ 725,000 | $ 3,215,000 | ||
| Liabilities | $ (780,000) | $ (88,000) | $ (868,000) | ||
| Common stock | $ (500,000) | $ (100,000) | S 100,000 | $ (500,000) | |
| Additional paid-in capital | $ (120,000) | $ (30,000) | S 30,000 | $ (120,000) | |
| Retained earnings | $ (1,630,000) | $ (507,000) | $ (1,727,000) | ||
| Total liabilities and equity | $ (3,030,000) | $ (725,000) | $ 850,000 | $ 850,000 | $ (3,215,000) |
Table: (3)
| Statement of retained earnings | Company I | Company C | Debit | Credit | Consolidated Balances |
| Retained earnings on 01/01 | $ (1,555,000) | $ (450,000) | S 450,000 | *C 60,000 | $ (1,615,000) |
| Net Income | $ (325,000) | $ (97,000) | $ (362,000) | ||
| Dividends declared | $ 250,000 | $ 40,000 | I 40,000 | $ 250,000 | |
| Retained earnings on 31/12 | $ (1,630,000) | $ (507,000) | $ (1,727,000) |
Table: (4)
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