Determining ending consolidated balances in the second
year following the acquisition—Equity
method
Assume that your company acquired a subsidiary on January 1, 2012.
The purchase price was $650,000 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 (years) |
---|---|---|
Property, plant and equipment (PPE), net | $325,000 | 20 |
Goodwill | 325,000 | Indefinite |
$650,000 |
The AAP asset relating to undervalued PPE with a 20-year useful life has been depreciated as part of the parent's equity method accounting. The financial statements of the parent and its subsidiary for the year ended December 31, 2013, are as follows:
Parent | Subsidiary | Parent | Subsidiary | |||
---|---|---|---|---|---|---|
Income statement: | Balance sheet: | |||||
Sales | $5,500,000 | $1,210,000 | Assets | |||
Cost of goods sold | (3,960,000) | (720,000) | Cash | $1,019,300 | $319,200 | |
Gross profit | 1,540,000 | 490,000 | Accounts receivable | 1,398,000 | 278,400 | |
Equity income | 161,750 | Inventory | 2,134,000 | 357,600 | ||
Operating expenses | (825,000) | (312,000) | Equity investment | 1,570,300 | ||
Net income | $876,750 | $178,000 | Property, plant and equipment (PPE), net | 11,365,200 | 661,600 | |
$17,486,800 | $1,616,800 | |||||
Statement of retained earnings: | ||||||
BOY retained earnings | $3,760,550 | $620,000 | Liabilities and stockholders' equity | |||
Net income | 876,750 | 178,000 | Accounts payable | $805,200 | $114,400 | |
Dividends | (182,350) | (25,200) | Accrued liabilities | 957,000 | 149,600 | |
Ending retained earnings | $4,454,950 | $772,800 | Long-term liabilities | 7,000,000 | 400,000 | |
Common stock | 502,450 | 80,000 | ||||
APIC | 3,767,200 | 100,000 | ||||
Retained earnings | 4,454,950 | 772,800 | ||||
$17,486,800 | $1,616,800 |
At what amount will the following accounts appear on the consolidated financial statements?
Note: Do not use negative signs with your answers.
a. | Sales | Answer |
b. | Equity income | Answer |
c. | Operating expenses | Answer |
d. | Accounts receivable | Answer |
e. | Equity investment | Answer |
f. | Property plant and equipment (PPE) net | Answer |
g. | Goodwill | Answer |
h. | Common stock | Answer |
i. | Retained earnings | Answer |
Consolidated Financial Statements | ||||||
S.no | Particulars | Parent | subsidiary | consolidated | ||
$ | $ | $ | ||||
a | Sales | 5,500,000 | 1,210,000 | 6,710,000 | ||
b | Equity income | 161,750 | 0 | 161,750 | ||
c | Operating expenses | 825,000 | 312,000 | 1,137,000 | ||
d | Accounts Receivables | 1,398,000 | 278,400 | 1,676,400 | ||
e | Equity investment | 1,570,300 | 0 | 1,570,300 | ||
f | Propert,Plant &Equipment(net) | 11,365,200 | 661,600 | 12,026,800 | ||
g | Goodwill | 325,000 | 0 | 325,000 | ||
h | Common Stock | 502,450 | 80,000 | 582,450 | ||
i | Retained Earnings | 4,454,950 | 772,800 | 5,227,750 | ||
> Followup:
Operating Expense (c.) is 1,153,250. Still unable to figure out PPE net. You need to take the subsidiary's PPE net and add it to the 325000 that's given initially as PPE. Not sure what to do from there though. Hope this helps out!
Mike Sapienza Fri, Apr 9, 2021 2:49 PM
> The PPE (f.) is 12,319,300.
Mike Sapienza Fri, Apr 9, 2021 3:50 PM
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> Correct Answers:
a. 6,710,000
b. 0
c. ?
d. 1,676,400
e. 0
f. ?
g. 325,000
h. 502,450
i. 4,454,950
Mike Sapienza Fri, Apr 9, 2021 2:24 PM