On January 1, Year 1, Haws Inc (HI) acquired 100 percent of the voting stock of Keenon

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Question:

On January 1, Year 1, Haws Inc (HI) acquired 100 percent of the voting stock of Keenon Corporation (KC) for $2,000,000 in cash. KC will continue to operate with its own legal and accounting identity. During Year 1, Keenon Corporation had net income of $250,000 and paid cash dividends of $40,000 on August 1, Year 1.

The balance sheets for Haws and Keenon on the date of acquisition are shown below. Additional information on Haws and Keenon is also provided. Haws used the Initial Value Method to account for acquisitions in its internal accounting records in year 1.

Keenon Corporation Accounts on 1/1/Year 1

Book Value Fair Value Difference
Current Assets $ 250,000 $ 250,000 $ 0
Accounts Receivable 350,000 350,000 0
PPE (10-year life) 1,000,000 1,200,000 200,000
Patents (6-year life) 300,000 390,000 90,000
Copyrights (10-year life) 0 50,000 50,000
Liabilities (300,000) (300,000) 0
Total Net Assets $1,600,000 $1,940,000 $ 340,000

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Income, dividends, and retained earnings figures for Keenon Corporation for the years 1 through 7 are shown below.

Keenon Dividends Increase in Ending
Year Net Income Paid Book Value Retained Earnings
1 250,000 40,000 210,000 710,000
2 200,000 110,000 90,000 800,000
3 300,000 150,000 150,000 950,000
4 350,000 225,000 125,000 1,075,000
5 400,000 275,000 125,000 1,200,000
6 450,000 300,000 150,000 1,350,000
7 500,000 350,000 150,000 1,500,000
$2,450,000 1,450,000 1,000,000

Prepare the worksheet entries on the sheet provided to consolidate Haws Inc. and Keenon Corporation as of December 31, Year 7. Haws Inc. uses the partial equity method for internal reporting purposes to account for its investments over which it has control.