Question

On January 1, 2018, Brooks Corporation exchanged $1,235,000 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,185,000. Chandler's individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $246,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks's only business combination for the year. In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value. On December 31, 2018, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period. Brooks Corp. Chandler Inc. $ $ (671,000) 204,000 (466,000) 252,000 (196,000) 139,000 (249,000) (520,000) 177,000 $ $ (290,000) Income Statement Revenues Cost of goods sold Gain on bargain purchase Depreciation and amortization Equity earnings from Chandler Net income Statement of Retained Earnings Retained earnings, 1/1 Net income (above) Dividends declared Retained earnings, 12/31 Balance Sheet Current assets Investment in Chandler Trademarks Patented technology Equipment Total assets Liabilities Common stock Retained earnings, 12/31 Total liabilities and equity $(1,830,000) (520,000) 300,000 $(2,050,000) $ (885,000) (290,000) 60,000 $(1,115,000) $ 422,000 $ 142,000 1,620,000 198,000 307,000 625,000 $ 2,892,000 $ (307,000) (535,000) (2,050,000) $(2,892,000) 291,000 455,000 398,000 $ 1,566,000 $ (151,000) (300,000) (1,115,000) $(1,566,000) Note: Parentheses indicate a credit balance. a. Determine the following account balances: • Gain on bargain purchase. • Earnings from Chandler. • Investment in Chandler. b. Prepare a December 31, 2018, consolidated worksheet for Brooks and Chandler.

Answer 1

Gain on Bargain Puarchase
Consideration for exchange		$1,235,000
Chandler Book Value of Assets	$1,185,000
Patent Technology undervalued	$246,000
Acquisition fair value of assets		$1,431,000
Gain on Bargain Purchase		($196,000)
Equity Earnings in Chadler
Chandler Net Income		$290,000
Patent Technology Amortisation ($246,000/6Years)		($41,000)
Total Equity Earnings		$249,000
Investment in chadler 12/31/18
Fair Value of Assets on the acquisition date		$1,431,000
Add:Equity Earnings		$249,000
Less:Dividends received		($60,000)
Investment in chadler 12/31/18		$1,122,000

Consolidated Work Sheet:

Brooks and Chandler
Consolidated WorkSheet
For year ending December 31,2018
			Consolidated Entries
Accounts	Brooks	Chandler	Debit	Credit	Consolidated totals
Income Statement
revenues	($466,000)	(671,000)			($1,137,000)
Cost of Goods Sold	$252,000	$204,000			$456,000
Gain on bargain purchase	($196,000)	0			($196,000)
Depreciation and amortisation	$139,000	$177,000	$41,000		$357,000
Equity earnings in chandler	($249,000)	0	249000		0
Net Income	($520,000)	($290,000)			($520,000)
Statement of retained earnings
Retained earnings,1/1	($1,830,000)	($885,000)	$885,000		($1,830,000)
net Income	($520,000)	($290,000)			($520,000)
Dividends declared	$300,000	$60,000		$60,000	$300,000
Retained Earnings 12/31	($2,050,000)	($1,115,000)			($2,050,000)
Balance Sheet
Current Assets	$142,000	$422,000			$564,000
Investment in Chandler	$1,620,000	0	$60,000	$249,000	0
				$300,000
				$246,000
				$885,000
Trademarks	$198,000	$291,000			$489,000
Patented Technology	$307,000	$455,000	$246,000	$41,000	$967,000
Equipment	$625,000	$398,000			$1,023,000
Total Assets	$2,892,000	$1,566,000			$3,043,000
Liabilities	($307,000)	($151,000)			-458000
Common Stock	($535,000)	($300,000)	($300,000)		($535,000)
Retained earnings, 12/31	($2,050,000)	($1,115,000)			($2,050,000)
Total Liabilities and Equity	($2,892,000)	($1,566,000)			($3,043,000)