Determining ending consolidated balances in the third year following the acquisitionEquity method Assume that your company acquired
Question:
Determining ending consolidated balances in the third year following the acquisition—Equity method
Assume that your company acquired a subsidiary on January 1, 2017. The purchase price was $900,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following [A] assets:
| [A] Asset | Original Amount | Original Useful Life |
|---|---|---|
| Patent | $600,000 | 10 years |
| Goodwill | 300,000 | Indefinite |
| $900,000 |
The [A] assets with a useful life have been amortized as part of the parent’s equity method accounting. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows:
| Parent | Subsidiary | Parent | Subsidiary | |||
|---|---|---|---|---|---|---|
| Income statement: | Balance sheet: | |||||
| Sales | $3,000,000 | $1,000,000 | Assets | |||
| Cost of goods sold | (2,000,000) | (520,000) | Cash | $700,000 | $160,000 | |
| Gross profit | 1,000,000 | 480,000 | Accounts receivable | 910,000 | 200,000 | |
| Equity income | 200,000 | Inventory | 1,200,000 | 300,000 | ||
| Operating expenses | (450,000) | (220,000) | Equity investment | 1,720,000 | ||
| Net income | $750,000 | $260,000 | Property, plant and equipment (PPE), net | 3,000,000 | 800,000 | |
| $7,530,000 | $1,460,000 | |||||
| Statement of retained earnings: | ||||||
| BOY retained earnings | $2,580,000 | $ 400,000 | Liabilities and stockholders’ equity | |||
| Net income | 750,000 | 260,000 | Accounts payable | $400,000 | $90,000 | |
| Dividends | (200,000) | (40,000) | Accrued liabilities | 500,000 | 120,000 | |
| Ending retained earnings | $3,130,000 | $ 620,000 | Long-term liabilities | 1,000,000 | 250,000 | |
| Common stock | 500,000 | 300,000 | ||||
| APIC | 2,000,000 | 80,000 | ||||
| Retained earnings | 3,130,000 | 620,000 | ||||
| $7,530,000 | $1,460,000 |
At what amount will the following accounts appear in the consolidated financial statements for the year ended December 31, 2019?
| Account | Amount |
|---|---|
| a. Cost of goods sold | Answer |
| b. Equity income | Answer |
| c. Operating expenses | Answer |
| d. Cash | Answer |
| e. Equity investment | Answer |
| f. PPE, net | Answer |
| g. Patent | Answer |
| h. Goodwill | Answer |
| i. Common Stock | Answer |
| j. Retained Earnings | Answer |
Expert Answer:
Account a Cost of Goods Sold b Equity Income c Operating Expenses d Cash e Equity Investment f PPE n... View the full answer
