On January $1,2023,$ Mona, Incorporated, acquired $90$ percent of Lisa Company$$s common stock as well as $70$ percent of its preferred shares. Mona paid $$89,000$ in cash for the preferred stock, with a call value of $110$ percent of the $$50$ per share par value. The remaining $30$ percent of the preferred shares traded at a $$58,000$ fair value. Mona paid $$607,500$ for the common stock. At the acquisition date, the noncontrolling interest in the common stock had a fair value of $$67,500.$ The excess fair value over Lisa$$s book value was attributed to franchise contracts of $$25,000.$ This intangible asset is being amortized over a $20-$year period. Lisa pays all preferred stock dividends $($a total of $$32,000$ per year$)$ on an annual basis. During $2023,$ Lisa$$s book value increased by $$99,000.$

On January $2,2023,$ Mona acquired one$-$half of Lisa's outstanding bonds payable to reduce the business combination's debt position. Lisa's bonds had a face value of $$100,000$ and paid cash interest of $12$ percent per year. These bonds had been issued to the public to yield $16$ percent. Interest is paid each December $31.$ On January $2,2023,$ these bonds had a total $$88,806$ carrying amount. Mona paid $$53,170,$ indicating an effective interest rate of $10$ percent.

On January $3,2023,$ Mona sold Lisa fixed assets that had originally cost $$124,000$ but had accumulated depreciation of $$40,000$ when transferred. The transfer was made at a price of $$168,000.$ These assets were estimated to have a remaining useful life of $15$ years.

The individual financial statements for these two companies for the year ending December $31,2024,$ are as follows:

Accounts Mona, Incorporated Lisa Company

Sales and other revenues $ $(548,000)$ $ $(248,000)$

Expenses $244,000144,000$

Dividend income$$Lisa common stock $(30,600)0$

Dividend income$$Lisa preferred stock $(22,400)0$

Net income $ $(357,000)$ $ $(104,000)$

Retained earnings, $1/1/24$ $ $(724,000)$ $ $(548,000)$

Net income $($above$)(357,000)(104,000)$

Dividends declared$$common stock $116,80034,000$

Dividends declared$$preferred stock $032,000$

Retained earnings, $12/31/24$ $ $(964,200)$ $ $(586,000)$

Current assets $ $154,419$ $ $524,000$

Investment in Lisa$$common stock $607,5000$

Investment in Lisa$$preferred stock $89,0000$

Investment in Lisa$$bonds $51,7360$

Fixed assets $1,124,000824,000$

Accumulated depreciation $(324,000)(224,000)$

Total assets $ $1,702,655$ $ $1,124,000$

Accounts payable $ $(414,455)$ $ $(96,414)$

Bonds payable $0(100,000)$

Discount on bonds payable $06,414$

Common stock $(324,000)(224,000)$

Preferred stock $0(124,000)$

Retained earnings, $12/31/24(964,200)(586,000)$

Total liabilities and equities $ $(1,702,655)$ $ $(1,124,000)$

Note: Credits are indicated by parentheses.

Required:

What consolidation worksheet adjustments would have been required as of January $1,2023,$ to eliminate the subsidiary's common and preferred stocks?

What consolidation worksheet adjustments would have been required as of December $31,2023,$ to account for Mona's purchase of Lisa's bonds?

What consolidation worksheet adjustments would have been required as of December $31,2023,$ to account for the intra$-$entity sale of fixed assets?

Assume that consolidated financial statements are being prepared for the year ending December $31,2024.$ Calculate the consolidated balance for each of the following accounts:

Franchises

Fixed Assets

Accumulated Depreciation

Expenses

Answer rating: 100% (QA)

To prepare the consolidation worksheet adjustments we need to eliminate the subsidiarys common and preferred stocks and account for Monas purchase of ... View the full answer