Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2013 (credit balances indicated by parentheses). Michael acquired all of Aaron€™s outstanding voting stock on January 1, 2009, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company€™s stock actively traded at $23.50 per share.

On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books.
a. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2013.
b. Assuming that Michael applied the equity method to this investment, what account balances would differ on the parent€™s individual financial statements?
c. Assuming that Michael applied the equity method to this investment, what changes would be necessary in the consolidation entries found on a December 31, 2013, worksheet?
d. Assuming that Michael applied the equity method to this investment, what changes would be created in the consolidated figures to be reported by thiscombination?

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3 Cost of goods sold Dividend income Retained earnings, 1/1/13 Retained earnings, 1231/13 $(1,020,000) (635,000) Investment in Aaron Company Royalty agreements. 2.900.000S1,235,000 Additional paid-in capital Retained earnings, 12/B1/13 (1,020,000) 5(2,900,000) 1235,000) Total liabilities and equity