Problem $5($recommended: Review slides $73-83)$

Hoyle, Schaefer and Doupnik $-$ Chapter $3$ Problem $29$

Following are separate financial statements of Michael Company and Aaron Company as of December $31,2024.$ Michael acquired all of Aaron's outstanding voting stock on January $1,2020,$by issuing $20,000$ shares of its own $\backslash (\backslash$$ $1\backslash )$ par common stock. On the acquisition date, Michael Company's stock actively traded at $\backslash (\backslash$$ $23\mathrm{.}50\backslash )$ per share.

On the date of acquisition, Aaron reported Retained Earnings of $\backslash (\backslash$$ $230,000\backslash )$ and a total book value of $\backslash (\backslash$$ $360,000\backslash ).$ At that time, its royalty agreements were undervalued by $\backslash (\backslash$$ $60,000\backslash ).$ This intangible was assumed to have a six$-$year life with no residual value. Additionally, Aaron owned a trademark with a fair value of $\backslash (\backslash$$ $50,000\backslash )$ and a $10-$year remaining life that was not reflected on its books.

Requirement:

Using the preceding information, prepare consolidation worksheet for these two companies as of December $31,2024.\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|$c$|$c$|$c$|\}$

$\backslash$hline $\backslash$multirow$[$b$]\{2\}\{*\}\{$Account$\}$ & $\backslash$multirow$[$b$]\{2\}\{*\}\{$Parent$\}$ & $\backslash$multirow$[$b$]\{2\}\{*\}\{$Subsidiary$\}$ & $\backslash$multicolumn$\{2\}\{|$l$|\}\{$Consolidation Entries$\}$ & $\backslash$multirow$[$t$]\{2\}\{*\}\{\backslash$begin$\{$tabular$\}\{$l$\}$

Consolid. $\backslash \backslash$

Totals

$\backslash$end$\{$tabular$\}\}\backslash \backslash$

$\backslash$hline & & & Debits & Credits & $\backslash \backslash$

$\backslash$hline $\backslash$multicolumn$\{3\}\{|$l$|\}\{$Income Statement$\}$ & & & $\backslash \backslash$

$\backslash$hline Revenues & $(\backslash$$$610,000)$ & $\backslash ((\backslash$$ $370,000)\backslash )$ & & & $\backslash \backslash$

$\backslash$hline Cost of Goods Sold & $\backslash$$$270,000$ & $\backslash$$$140,000$ & & & $\backslash \backslash$

$\backslash$hline Amortization Expenses & $\backslash$$$115,000$ & $\backslash$$$80,000$ & & & $\backslash \backslash$

$\backslash$hline Dividend Income & $\backslash ((\backslash$$ $5,000)\backslash )$ & & & & $\backslash \backslash$

$\backslash$hline Net Income & $(\backslash$$$230,000)$ & $\backslash ((\backslash$$ $150,000)\backslash )$ & & & $\backslash \backslash$

$\backslash$hline $\backslash$multicolumn$\{3\}\{|$l$|\}\{$Statement of Retained Earnings$\}$ & & & $\backslash \backslash$

$\backslash$hline Retained Earnings $1/1/24$ & $(\backslash$$$880,000)$ & $\backslash ((\backslash$$ $490,000)\backslash )$ & & & $\backslash \backslash$

$\backslash$hline Net Income $($above$)$ & $(\backslash$$$230,000)$ & $(\backslash$$$150,000)$ & & & $\backslash \backslash$

$\backslash$hline Dividend Paid & $\backslash$$$90,000$ & $\backslash$$$5,000$ & & & $\backslash \backslash$

$\backslash$hline Retained Earnings $12/31/24$ & $(\backslash$$$1,020,000)$ & $\backslash ((\backslash$$ $635,000)\backslash )$ & & & $\backslash \backslash$

$\backslash$hline & & & & & $\backslash \backslash$

$\backslash$hline $\backslash$multicolumn$\{3\}\{|$l$|\}\{$Balance Sheet$\}$ & & & $\backslash \backslash$

$\backslash$hline Cash & $\backslash$$$110,000$ & $\backslash$$$15,000$ & & & $\backslash \backslash$

$\backslash$hline Receivables & $\backslash$$$380,000$ & $\backslash$$$220,000$ & & & $\backslash \backslash$

$\backslash$hline Inventory & $\backslash$$$560,000$ & $\backslash$$$280,000$ & & & $\backslash \backslash$

$\backslash$hline Investment in Subsidiary & $\backslash$$$470,000$ & $\backslash$$$0$ & & & $\backslash \backslash$

$\backslash$hline Copyrights & $\backslash$$$460,000$ & $\backslash$$$340,000$ & & & $\backslash \backslash$

$\backslash$hline Royalty Agreements & $\backslash$$$920,000$ & $\backslash$$$380,000$ & & & $\backslash \backslash$

$\backslash$hline Total Assets & $\backslash$$$2,900,000$ & $\backslash$$$1,235,000$ & & & $\backslash \backslash$

$\backslash$hline & & & & & $\backslash \backslash$

$\backslash$hline Liabilities & $(\backslash$$$780,000)$ & $\backslash ((\backslash$$ $470,000)\backslash )$ & & & $\backslash \backslash$

$\backslash$hline Preferred Stocks & $(\backslash$$$300,000)$ & $\backslash$$$0$ & & & $\backslash \backslash$

$\backslash$hline Common Stock & $(\backslash$$$500,000)$ & $(\backslash$$$100,000)$ & & & $\backslash \backslash$

$\backslash$hline Additional Paid$-$in Capital & $(\backslash$$$300,000)$ & $(\backslash$$$30,000)$ & & & $\backslash \backslash$

$\backslash$hline Retained Earnings $12/31/24$ & $(\backslash$$$1,020,000)$ & $\backslash ((\backslash$$ $635,000)\backslash )$ & & & $\backslash \backslash$

$\backslash$hline Total Liabilities and Equity & $(\backslash$$$2,900,000)$ & $(\backslash$$$1,235,000)$ & & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$