Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:
Penske | Stanza | ||||||||
Revenues | $ | (832,000 | ) | $ | (668,000 | ) | |||
Cost of goods sold | 296,200 | 167,000 | |||||||
Depreciation expense | 202,000 | 306,000 | |||||||
Investment income | Not given | 0 | |||||||
Dividends declared | 80,000 | 60,000 | |||||||
Retained earnings, 1/1/18 | (768,000 | ) | (272,000 | ) | |||||
Current assets | 468,000 | 622,000 | |||||||
Copyrights | 916,000 | 587,000 | |||||||
Royalty agreements | 704,000 | 1,058,000 | |||||||
Investment in Stanza | Not given | 0 | |||||||
Liabilities | (582,000 | ) | (1,580,000 | ) | |||||
Common stock | (600,000 | ) | ($20 par) | (200,000 | ) | ($10 par) | |||
Additional paid-in capital | (150,000 | ) | (80,000 | ) | |||||
Note: Parentheses indicate a credit balance.
On January 1, 2018, Penske acquired all of Stanza’s outstanding stock for $791,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition copyrights (with a six-year remaining life) have a $638,000 book value but a fair value of $710,000.
As of December 31, 2018, what is the consolidated copyrights balance?
For the year ending December 31, 2018, what is consolidated net income?
As of December 31, 2018, what is the consolidated retained earnings balance?
As of December 31, 2018, what is the consolidated balance to be reported for goodwill?
A) | Calculate the Consolidated Copyrights balance as of December 31,2018 : | |
Particulars | Amount ($ ) | |
Penske ( book value ) | $ 916,000 | |
Stanza (book value ) | $ 587,000 | |
Allocation of copyrights ( 710,000 -638,000) | $ 72,000 | |
less: Excess Amortization ,2018 ( see note 1) | ($12,000) | |
Consolidated copyrights balance | $ 1,563,000 |
B) | Calculate the Consolidated Net income for the year ended December 31,2018 : | ||
Particulars | Amount ($ ) | Amount ($ ) | |
Revenue ($ 832,000 + $ 668,000) | $ 1,500,000 | ||
less: Expenses : | |||
Cost of goods sold ( $ 296,200+$ 167,000) | $ 463,200 | ||
Depreciation expenses ($202,000 +$ 306,000 } | $ 508,000 | ||
Excess Amortization ,2018 | $ 12,000 | ( $ 983,200 ) | |
Consolidated Net income | $ 516,800 |
C) | Calculate Consolidated Retained earnings balance as of December 31,2018 : | |
Particulars | Amount ($ ) | |
Retained earnings (1/1/2018 ) (only penske ) | $ 768,000 | |
Net income 2018 ( see in required 2 ) | $ 516,800 | |
Less: Dividend declared 2018 ( only penske ) | ($ 80,000 ) | |
Consolidated Retained earnings | $ 1,204,800 | |
Retained earnings Balance of stanza as on 1/1/2018 is not included because | ||
these operations occurred prior to acquisition . | ||
Stanza's Dividends are attributable to Penske are to be Excluded Because they are | ||
Intra-entity in nature. | ||
D) | Calculate Consolidated balance to be reported for Goodwill as of December 31,2018 : | |
Particulars | Amount ($ ) | |
Stanza acquisition fair value | $ 791,000 | |
(10,000 in stock issue cost reduce additional paid in capital ) | ||
less: Book value of subsidiary (1/1/2018 , stockholders equity balance ) | ($ 552,000) | |
( see note 2 ) | ||
Fair value in excess of book value | $ 239,000 | |
less: Excess fair value allocated to copyrights based on fair value | ($ 72,000) | |
( $ 710,000 - $ 638,000) | ||
Consolidated balance to be reported for Goodwill | $ 167,000 | |
Amortization : | ||
Amortization of copyrights ( 6 years remaining life )($72,000/6 years) | $ 12,000 | |
Goodwill ( indefinite ) | $ 0 | |
Total | $ 12,000 |
EXPLANATIONS :
note 1 : | |
calculate the Excess Amortization ,2018 : | |
Amortization of Fair value of copyrights | $ 118,333 |
($ 710,000 / 6 years ) | |
Less : Amortization of Book value of copyrights | ($106,333) |
($ 638,000 / 6 years ) | |
Excess Amortization ,2018 | $ 12,000 |
Note 2 : | |
Stanza's common stock | $ 200,000 |
Add: Additional paid in capital | $ 80,000 |
$ 280,000 | |
Add: Retained earnings (1/1/2018) | $ 272,000 |
Book value | $ 552,000 |
Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:...
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