Suppose a central bank wishes to stabilize the price level and real output at its full-employment level. How should it respond to the following? Specifically, describe what the central bank should do with respect to the money supply ( ̄M). Assume the economy begins at full employment. 

(a) Increase in government purchases

(b) Decrease in consumer confidence

(c) Increase in the price of oil

Transcribed Image Text:

1. Consolidation - Equity Method 60 Points Allen Enterprises acquired Brookfield, Inc. as a wholly owned subsidiary in a taxable transaction on January 1, 2016. The $550,000 excess of cost over book value of Brookfield's net assets was allocated to the following assets: Inventory Patent Customer list Sales revenue Cost of goods sold Gross profit Operating expenses Equity income Net Income The remaining excess is considered goodwill. The parent uses the equity method of pre- consolidation Equity investment bookkeeping. Neither company issued any shares of stock during this period. The separate financial statements of the two companies for 2020 are presented below. Retained Earnings, 1/1/20 Net income Dividends Retained Earnings, 12/31/20 Book Value $60,000 50,000 0 Cash and receivables Inventory Equity investment Property, plant & equipment (Net) Total Assets Accounts payable Accrued liabilities Notes payable Common stock Additional paid-in capital Retained Earnings, 12/31/20 Total Liabilities and Equities Fair Value $55,000 225,000 80,000 Allen Enterprises $ 2,307,500 (1,581,400) 726,100 (386,120) 104.450 444,430 $ 1,623,920 444,430 (81,940) $ 1,986.410 $ 635,760 638,350 1,999,060 3,684,040 $6.957,210 $ Life 1 year 7 years 4 years 274,210 465,500 870,000 405,230 2,955,860 1.986.410 $ 6,957,210 Brookfield, Inc. $1,067,500 (740,500) 327,000 (197,550) $129.450 $ 884,870 129,450 (25,420) $ 988,900 $ 802,050 614,120 1,291,210 $2.707.380 $ 182,430 272,390 603,500 204,540 455,620 988,900 $2,707,380 a. Prove the equity income and equity investment balances reported in the financial statements. b. Prepare all necessary consolidation entries for 2020 consolidated financial statements. Now assume that at year-end a goodwill impairment test is conducted before the consolidated statements are issued. The estimated fair value of the subsidiary is $1,900,000. The fair value of the identifiable net assets is $1,700,000. c. Prepare any journal entries resulting from the test. d. How would the consolidating entries change as a result of the impairment? 1. Consolidation - Equity Method 60 Points Allen Enterprises acquired Brookfield, Inc. as a wholly owned subsidiary in a taxable transaction on January 1, 2016. The $550,000 excess of cost over book value of Brookfield's net assets was allocated to the following assets: Inventory Patent Customer list Sales revenue Cost of goods sold Gross profit Operating expenses Equity income Net Income The remaining excess is considered goodwill. The parent uses the equity method of pre- consolidation Equity investment bookkeeping. Neither company issued any shares of stock during this period. The separate financial statements of the two companies for 2020 are presented below. Retained Earnings, 1/1/20 Net income Dividends Retained Earnings, 12/31/20 Book Value $60,000 50,000 0 Cash and receivables Inventory Equity investment Property, plant & equipment (Net) Total Assets Accounts payable Accrued liabilities Notes payable Common stock Additional paid-in capital Retained Earnings, 12/31/20 Total Liabilities and Equities Fair Value $55,000 225,000 80,000 Allen Enterprises $ 2,307,500 (1,581,400) 726,100 (386,120) 104.450 444,430 $ 1,623,920 444,430 (81,940) $ 1,986.410 $ 635,760 638,350 1,999,060 3,684,040 $6.957,210 $ Life 1 year 7 years 4 years 274,210 465,500 870,000 405,230 2,955,860 1.986.410 $ 6,957,210 Brookfield, Inc. $1,067,500 (740,500) 327,000 (197,550) $129.450 $ 884,870 129,450 (25,420) $ 988,900 $ 802,050 614,120 1,291,210 $2.707.380 $ 182,430 272,390 603,500 204,540 455,620 988,900 $2,707,380 a. Prove the equity income and equity investment balances reported in the financial statements. b. Prepare all necessary consolidation entries for 2020 consolidated financial statements. Now assume that at year-end a goodwill impairment test is conducted before the consolidated statements are issued. The estimated fair value of the subsidiary is $1,900,000. The fair value of the identifiable net assets is $1,700,000. c. Prepare any journal entries resulting from the test. d. How would the consolidating entries change as a result of the impairment?

Answer rating: 100% (QA)

a Increase in government purchases In order to stabilize the price level and real output at its full... View the full answer