Plaza, Inc., acquires 80 percent of the outstanding common stock of Stanford Corporation on January 1, 2018,
Question:
Plaza, Inc., acquires 80 percent of the outstanding common stock of Stanford Corporation on
January
1, 2018, in exchange for $900,000 cash. At the acquisition date, Stanford’s total fair value,
including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date,
Stanford’s book value was $690,000.
Several individual items on Stanford’s financial records had fair values that differed from their
book values as follows:
BOOK VALUE FAIR VALUE
Tradenames (indefinite life) . . . . . . . . . . . . . . . . . . . $ 360,000 $383,000
Property and equipment (net, 8-year
remaining life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,000 330,000
Patent (14-year remaining life) . . . . . . . . . . . . . . . . . 132,000 272,000
LO 4-1, 4-5, 4-6
For internal reporting purposes, Plaza, Inc., employs the equity method to account for this
investment. The following account balances are for the year ending December 31, 2018, for both
companies.
Plaza Stanford
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,400,000) $ (825,000)
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 774,000 395,750
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . 328,000 36,250
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . –0– 28,000
Equity in income of Stanford . . . . . . . . . . . . . . . . . . . (280,000) –0–
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (578,000) $ (365,000)
Retained earnings, 1/1/18 . . . . . . . . . . . . . . . . . . . . . $(1,275,000) $ (530,000)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (578,000) (365,000)
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 50,000
Retained earnings, 12/31/18 . . . . . . . . . . . . . . . . $(1,553,000) $ (845,000)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 860,000 $ 432,250
Investment in Stanford . . . . . . . . . . . . . . . . . . . . . . . . 1,140,000 –0–
Tradenames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 360,000
Property and equipment (net) . . . . . . . . . . . . . . . . . . 1,030,000 253,750
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0– 104,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,270,000 $ 1,150,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (142,000) $ (145,000)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (300,000) (120,000)
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . (1,275,000) (40,000)
Retained earnings (above) . . . . . . . . . . . . . . . . . . . . . (1,553,000) (845,000)
Total liabilities and equities . . . . . . . . . . . . . . . . . . $(3,270,000) $(1,150,000)
At year-end, there were no intra-entity receivables or payables.
Prepare a worksheet to consolidate the financial statements of Plaza, Inc., and its subsidiary Stanford.
Expert Answer:
