Determining ending consolidated balances in the second year following the acquisition—Cost method
Assume a parent company acquired a subsidiary on January 1, 2015, for $2,036,000. The purchase price was $916,200 in excess of the subsidiary’s $1,119,800 book value of Stockholders’ Equity on the acquisition date. Of this excess purchase price, $452,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $464,200 was assigned to Goodwill. On the acquisition date, the subsidiary reported retained earnings equal to $847,550. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, are as follows:
Parent | Subsidiary | Parent | Subsidiary | |||
---|---|---|---|---|---|---|
Income statement | Balance sheet | |||||
Sales | $8,318,750 | $1,865,000 | Assets | |||
Cost of goods sold | (5,989,500) | (1,089,000) | Cash | $1,567,280 | $468,600 | |
Gross profit | 2,329,250 | 776,000 | Accounts receivable | 2,462,900 | 421,300 | |
Equity income | 37,400 | – | Inventory | 3,326,850 | 540,650 | |
Operating expenses | (1,247,840) | (521,900) | Equity investment | 2,036,000 | – | |
Net income | $1,118,810 | $254,100 | Property, plant & equipment | 17,189,920 | 1,000,450 | |
Statement of retained earnings | $26,582,950 | $2,431,000 | ||||
BOY retained earnings | 5,801,070 | 937,750 | Liabilities and stockholders’ equity | |||
Net income | 1,118,810 | 254,100 | Accounts payable | $1,217,920 | $173,030 | |
Dividends | (262,570) | (37,400) | Accrued liabilities | 1,447,270 | 226,270 | |
Ending retained earnings | $6,657,310 | $1,154,450 | Long-term liabilities | 10,587,500 | 605,000 | |
Common stock | 875,060 | 121,000 | ||||
APIC | 5,797,890 | 151,250 | ||||
Retained earnings | 6,657,310 | 1,154,450 | ||||
$26,582,950 | $2,431,000 |
At what amount will the following accounts appear on the consolidated financial statements?
a. | Sales | |
b. | Investment income | |
c. | Operating expenses | |
d. | Inventories | |
e. | Equity investment | |
f. | Property, plant & equipment, net | |
g. | Goodwill | |
h. | Common stock | |
i. | Retained earnings |
Expert Answer
(a)- Sales – $ 10183750
(b) Investment Income- Nil
(c) Operating Expenses- $ 1769740
(d) Inventories- $ 3867500
(e) Equity investment- Nil
(f) Property Plant and Equipment- $ 18190370
(g) Goodwill- $464,200
(h) Common Stock- $ 875,060
(i) Retained earning- $ 7811760