Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2017, by issuing 8,300 shares of $10 par value common stock. Haynes’s shares had a $15 per share fair value. On that date, Turner reported a net book value of $83,850. However, its equipment (with a five-year remaining life) was undervalued by $6,850 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $33,800, although no value had been recorded on Turner’s books. The customer list had an estimated remaining useful life of 10 years.

The following balances come from the individual accounting records of these two companies as of December 31, 2017:

	Haynes			Turner
Revenues	$	(757,000	)	$	(344,000	)
Expenses		508,000			148,000
Investment income		Not given			0
Dividends declared		120,000			90,000

The following balances come from the individual accounting records of these two companies as of December 31, 2018:

	Haynes			Turner
Revenues	$	(927,000	)	$	(417,500	)
Expenses		532,400			185,900
Investment income		Not given			0
Dividends declared		130,000			80,000
Equipment		565,000			380,000

1. a. What balance does Haynes’s Investment in Turner account show on December 31, 2018, when the equity method is applied?

2. b. What is the consolidated net income for the year ending December 31, 2018?

3. c-1. What is the consolidated equipment balance as of December 31, 2018?

4. c-2. Would this answer be affected by the investment method applied by the parent?

5. d. Prepare entry *C for the beginning of the Retained Earnings account on a December 31, 2018 by using initial value, partial equity and equity method.'

Answer 1

a	An allocation of the acquisition price -based on the fair value of the shares issued .
	Acquisition Fair Value paid by Haynes*
	Book Value Equivalence	$124,500
	Excess of Turner fair value over book value	($83,850)
	Excess of Turner fair value over book value	$40,650
	* Acquisition Fair Value	$83850+$6850+$33800
		$124,500
		Excess Fair Value assigned to specific accounts based on Fair Value	Life	Annual Excess Amortization
	Equipment	$6,850	5 Yrs	$1,370
	Customer List	$33,800	10 Yrs	$3,380
				$4,750
	Acquisition fair value 2017			$124,500
	Income Accrual 2017 (Rev-Exp)			$196,000
	(344000-148000)
	Dividend declared by Turner			($90,000)
	2017 Amortization above			($4,750)
	2018 Income Accrual
	(417500-185900)			231600
	2018 dividend declared by turner			($80,000)
	2018 Amortization			($4,750)
	Investment in Turner account Balance			$372,600
b	Consolidated Net Income for yr ending 31 Dec 2018
	Net Income of Haynes	(927000-532400)		$394,600
	Net Income of Turner	(417500-185900)		$231,600
	Depreciation Expenses			($1,370)
	Amortization Expenses			($3,380)
	Consolidated Net Income 2018			$621,450
c-1	Consolidated Equipment Balance as on Dec 31 2018
	Equipment Balance Haynes			$565,000
	Equipment Balance Turner			$380,000
	Allocation based on fair value -above			$6,850
	Depreciation for 2017-2018	1370*2		($2,740)
	Consolidated Equipment Balance as on Dec 31 2018			$949,110
c-2	Parent Choice of an investment method has no impact on consolidated totals
d		Journal Entries
	Date	Account Title		Debit-$	Credit-$
	12/31/2018	Investment in Turner		101,250
		Retained Earnings			101,250
		($196000-$90000-$4750)
	12/31/2018	Retained Earnings		$4,750
		To Investment in Turner			$4,750
	12/31/2018	No Entry is required