On January 1, Year 4, Cyrus Inc. paid $914,000 in cash to acquire all of the...

 

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On January 1, Year 4, Cyrus Inc. paid $914,000 in cash to acquire all of the ordinary shares of Fazli Company. On that date, Fazli's retained earnings were $200,000. All of Fazli's assets and liabilities had fair values equal to carrying amounts except for equipment, which was worth $50,000 more than carrying amount and had a remaining useful life of five years. In Year 4, Cyrus reported net income from its own operations (exclusive of any income from Fazli) of $125,000 and declared no dividends. In Year 4, Fazli reported net income of $90,000 and paid a $40,000 cash dividend. Cyrus uses the cost method to report its investment in Fazli. The financial statements for Cyrus and Fazli for the year ended December 31, Year 5, were as follows: Revenues and investment income Expenses Profit Retained earnings, 1/1/Year 5 Profit Dividends paid Retained earnings, 12/31/Year 5 Equipment (net) Investment in Fazli Receivables and inventory Cash Total assets Ordinary shares Retained earnings Liabilities Total equities and liabilities Equipment Goodwill Equipment (net) Goodwill Required: Prepare the following statements for the current year: Balance Jan. 1 Year 4 $ 50,000 180,000 (ii) Equity method $ 230,000 Investment income from Fazli Investment in Fazli (a) Prepare a schedule to allocate and amortize the acquisition differential for Years 4 and cells blank - be certain to enter "0" wherever required.) Yes No S Investment income from Fazli Investment in Fazli Cyrus Fazli $928,000 674,000 $ 844,000 710,000 $ 254,000 $ 134,000 Yes No $814,000 254,000 (104,000) $ 964,000 $ $714,000 914,000 414,000 94,000 $ $2,136,000 $ 558,000 964,000 614,000 $2,136,000 250,000 134,000 (42,000) $ 342,000 $ 614,000 0 484,000 152,000 $1,250,000 $1,250,000 (b) Calculate equipment and goodwill for the consolidated balance sheet at the end of Year 5. 484,000 342,000 424,000 Amortization Schedule 1,358,000 180,000 Year 4 $ 10,000 0 Amortization $ 10,000 a $ 42,000 $ 914,000 10,000 0 (c) Calculate investment income from Fazli and investment in Fazli account balances for Cyrus's separate entity financial statements for Year 5, assuming Cyrus uses the (i) Cost method Equity Method $ 124,000 $ 1,036,000 $ 10,000 2 Balance Dec. 31 Year 5 $ 30,000 180,000 (d) Whether the parent's method of accounting for its investment affect the amount reported for expenses in its December 31, Year 5, consolidated income statement? $ 210,000 Equity Method (e) Whether the parent's method of accounting for its investment affect the amount reported for equipment in its December 31, Year 5, consolidated balance sheet? (f) What is Cyrus's January 1, Year 5, retained earnings account balance assuming Cyrus accounts for its investment in Fazli using the Cost method, and Equity method? Cost Method (f) What is Cyrus's January 1, Year 5, retained earnings account balance on its separate entity financial statements assuming Cyrus accounts for its investment in Fazli using the: (i) Cost method? (ii) Equity method? (Omit $ sign in your response.) (i) Cost Method (ii) Equity Method Retained earnings $ $ (g) What are consolidated retained earnings at January 1, Year 5, assuming Cyrus accounts for its investment in Fazli using the: (i) Cost method? (ii) Equity method? (Omit $ sign in your response.) (i) Cost Method (ii) Equity Method Retained earnings $ $ On January 1, Year 4, Cyrus Inc. paid $914,000 in cash to acquire all of the ordinary shares of Fazli Company. On that date, Fazli's retained earnings were $200,000. All of Fazli's assets and liabilities had fair values equal to carrying amounts except for equipment, which was worth $50,000 more than carrying amount and had a remaining useful life of five years. In Year 4, Cyrus reported net income from its own operations (exclusive of any income from Fazli) of $125,000 and declared no dividends. In Year 4, Fazli reported net income of $90,000 and paid a $40,000 cash dividend. Cyrus uses the cost method to report its investment in Fazli. The financial statements for Cyrus and Fazli for the year ended December 31, Year 5, were as follows: Revenues and investment income Expenses Profit Retained earnings, 1/1/Year 5 Profit Dividends paid Retained earnings, 12/31/Year 5 Equipment (net) Investment in Fazli Receivables and inventory Cash Total assets Ordinary shares Retained earnings Liabilities Total equities and liabilities Equipment Goodwill Equipment (net) Goodwill Required: Prepare the following statements for the current year: Balance Jan. 1 Year 4 $ 50,000 180,000 (ii) Equity method $ 230,000 Investment income from Fazli Investment in Fazli (a) Prepare a schedule to allocate and amortize the acquisition differential for Years 4 and cells blank - be certain to enter "0" wherever required.) Yes No S Investment income from Fazli Investment in Fazli Cyrus Fazli $928,000 674,000 $ 844,000 710,000 $ 254,000 $ 134,000 Yes No $814,000 254,000 (104,000) $ 964,000 $ $714,000 914,000 414,000 94,000 $ $2,136,000 $ 558,000 964,000 614,000 $2,136,000 250,000 134,000 (42,000) $ 342,000 $ 614,000 0 484,000 152,000 $1,250,000 $1,250,000 (b) Calculate equipment and goodwill for the consolidated balance sheet at the end of Year 5. 484,000 342,000 424,000 Amortization Schedule 1,358,000 180,000 Year 4 $ 10,000 0 Amortization $ 10,000 a $ 42,000 $ 914,000 10,000 0 (c) Calculate investment income from Fazli and investment in Fazli account balances for Cyrus's separate entity financial statements for Year 5, assuming Cyrus uses the (i) Cost method Equity Method $ 124,000 $ 1,036,000 $ 10,000 2 Balance Dec. 31 Year 5 $ 30,000 180,000 (d) Whether the parent's method of accounting for its investment affect the amount reported for expenses in its December 31, Year 5, consolidated income statement? $ 210,000 Equity Method (e) Whether the parent's method of accounting for its investment affect the amount reported for equipment in its December 31, Year 5, consolidated balance sheet? (f) What is Cyrus's January 1, Year 5, retained earnings account balance assuming Cyrus accounts for its investment in Fazli using the Cost method, and Equity method? Cost Method (f) What is Cyrus's January 1, Year 5, retained earnings account balance on its separate entity financial statements assuming Cyrus accounts for its investment in Fazli using the: (i) Cost method? (ii) Equity method? (Omit $ sign in your response.) (i) Cost Method (ii) Equity Method Retained earnings $ $ (g) What are consolidated retained earnings at January 1, Year 5, assuming Cyrus accounts for its investment in Fazli using the: (i) Cost method? (ii) Equity method? (Omit $ sign in your response.) (i) Cost Method (ii) Equity Method Retained earnings $ $