East Company acquired all of the outstanding shares of West Corporation on April 1, 2016, for...

 

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East Company acquired all of the outstanding shares of West Corporation on April 1, 2016, for $15,000,000 in cash, when West's stockholder equity consisted of $5,000,000 capital stock and $2,000,000 retained earnings. The price reflected a $500,000 undervaluation of West's inventory (sold in 2016) and a $3,500,000 undervaluation of West's buildings (remaining useful life seven уears). During 2017, West sold a piece of land that cost $1,000,000 to East for $1,500,000. East resold the land for $2,200,000 in 2020. East sells inventory to West on a regular basis, as follows (in thousands): Selling Price Sales to West % unsold by West at year end % unpaid by West at year-end Cost to East 2016 500 300 2017 1,000 600 30 50 2018 1,200 720 18 40 1,000 1,500 2019 600 25 20 30 2020 900 20 West sold equipment with a book value of $800,000 to East on January 1, 2020, for $1,600,000. This equipment had a remaining useful life of four years at the time of the sale. East uses the equity method to account for its investment in West. The financial statements for East and West are summarized as follows (in thousands): Combined Income and Retained earnings Statement for the year ended December 31, 2020 East West Sales 26,000 11,000 Gain on land 700 Gain on equipment 800 Income from West d Cost of Sales Depreciation expense O ther Expenses (15,000) (5,000) (3,700) (2,000) (4.280) (2.800) Net Income 5,100 2,000 Add: Beginning R/E 12,375 4,000 Deduct: Dividends (3,000) (1,000) R/E December 31 14,475 5.000 Balance Sheet at December 31, 2020 East West Cash 1,170 500 A/R, net 2,000 5,000 1,500 2,000 Inventories Land 4,000 1,000 Buildings, net 15,000 4,000 10,000 14,405 Equipment, net 4,000 Investment in West Total Assets 51,575 13,000 A/P 4,100 1,000 Other Liabilities 7,000 2,000 Capital Stocks 26,000 5,000 Retained earnings 14,475 5,000 Total Liab. & SE 51,575 13,000 Required: 1. Determine the schedule of amortization of ECOBV for the years 2016 to 2020 (5 points). 2. Reconstruct the balance for the account "Investment in West" at December 31, 2020. Use the T-account to present the calculations (5 points). 3. Reconstruct the balance of the account "Income from West" for the year 2020. Use the T- account to present the calculations (3 points). 4. Prepare consolidation adjustment entries (12 points). 5. Complete a consolidated worksheet for East Company and its subsidiary West Company as of December 31, 2020. Use the format provided on the next page (5 points). East Company acquired all of the outstanding shares of West Corporation on April 1, 2016, for $15,000,000 in cash, when West's stockholder equity consisted of $5,000,000 capital stock and $2,000,000 retained earnings. The price reflected a $500,000 undervaluation of West's inventory (sold in 2016) and a $3,500,000 undervaluation of West's buildings (remaining useful life seven уears). During 2017, West sold a piece of land that cost $1,000,000 to East for $1,500,000. East resold the land for $2,200,000 in 2020. East sells inventory to West on a regular basis, as follows (in thousands): Selling Price Sales to West % unsold by West at year end % unpaid by West at year-end Cost to East 2016 500 300 2017 1,000 600 30 50 2018 1,200 720 18 40 1,000 1,500 2019 600 25 20 30 2020 900 20 West sold equipment with a book value of $800,000 to East on January 1, 2020, for $1,600,000. This equipment had a remaining useful life of four years at the time of the sale. East uses the equity method to account for its investment in West. The financial statements for East and West are summarized as follows (in thousands): Combined Income and Retained earnings Statement for the year ended December 31, 2020 East West Sales 26,000 11,000 Gain on land 700 Gain on equipment 800 Income from West d Cost of Sales Depreciation expense O ther Expenses (15,000) (5,000) (3,700) (2,000) (4.280) (2.800) Net Income 5,100 2,000 Add: Beginning R/E 12,375 4,000 Deduct: Dividends (3,000) (1,000) R/E December 31 14,475 5.000 Balance Sheet at December 31, 2020 East West Cash 1,170 500 A/R, net 2,000 5,000 1,500 2,000 Inventories Land 4,000 1,000 Buildings, net 15,000 4,000 10,000 14,405 Equipment, net 4,000 Investment in West Total Assets 51,575 13,000 A/P 4,100 1,000 Other Liabilities 7,000 2,000 Capital Stocks 26,000 5,000 Retained earnings 14,475 5,000 Total Liab. & SE 51,575 13,000 Required: 1. Determine the schedule of amortization of ECOBV for the years 2016 to 2020 (5 points). 2. Reconstruct the balance for the account "Investment in West" at December 31, 2020. Use the T-account to present the calculations (5 points). 3. Reconstruct the balance of the account "Income from West" for the year 2020. Use the T- account to present the calculations (3 points). 4. Prepare consolidation adjustment entries (12 points). 5. Complete a consolidated worksheet for East Company and its subsidiary West Company as of December 31, 2020. Use the format provided on the next page (5 points).

Answer rating: 100% (QA)

Preliminary computations amounts in thousands Investment cost for 100 of west April 1 2016 15000 Boo... View the full answer