Question & Answer: On January 1, 2015, Brooks Corporation exchanged $1,182,500 fair-value consideration for all of the outst…..

On January 1, 2015, Brooks Corporation exchanged $1,182,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,127,500. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $210,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year.
    In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.
    On December 31, 2015, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.
Brooks Corp. Chandler Inc.
  Income Statement
  Revenues $ (508,500 ) $ (655,000 )
  Cost of goods sold 210,000 245,000
  Gain on bargain purchase (155,000 ) 0
  Depreciation and amortization 144,000 167,000
  Equity earnings from Chandler (208,000 ) 0
     Net income $ (517,500 ) $ (243,000 )
  Statement of Retained Earnings
  Retained earnings, 1/1 $ (1,915,000 ) $ (827,500 )
  Net income (above) (517,500 ) (243,000 )
  Dividends declared 300,000 60,000
     Retained earnings, 12/31 $ (2,132,500 ) $ (1,010,500 )
  Balance Sheet
  Current assets $ 205,000 $ 379,500
  Investment in Chandler 1,485,500 0
  Trademarks 192,000 279,000
  Patented technology 310,000 457,000
  Equipment 664,000 343,000
     Total assets $ 2,856,500 $ 1,458,500
  Liabilities $ (189,000 ) $ (148,000 )
  Common stock (535,000 ) (300,000 )
  Retained earnings, 12/31 (2,132,500 ) (1,010,500 )
     Total liabilities and equity $ (2,856,500 ) $ (1,458,500 )

Note: Parentheses indicate a credit balance.

a. Determine the following account balances.

 

b. Prepare a December 31, 2015, consolidated worksheet for Brooks and Chandler. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

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