Question

Problem 3-36 (LO 3-3a)

Tyler Company acquired all of Jasmine Company’s outstanding stock on January 1, 2016, for $258,100 in cash. Jasmine had a book value of only $189,500 on that date. However, equipment (having an eight-year remaining life) was undervalued by $68,000 on Jasmine’s financial records. A building with a 20-year remaining life was overvalued by $15,000. Subsequent to the acquisition, Jasmine reported the following:

	Net Income			Dividends Declared
2016	$	65,400		$	10,000
2017		80,500			40,000
2018		33,000			20,000

In accounting for this investment, Tyler has used the equity method. Selected accounts taken from the financial records of these two companies as of December 31, 2018, follow:

	Tyler Company				Jasmine Company
Revenues—operating	$	(360,000	)		$	(178,000	)
Expenses		291,000				145,000
Equipment (net)		512,000				80,500
Buildings (net)		304,000				69,300
Common stock		(290,000	)			(57,900	)
Retained earnings, 12/31/18		(436,000	)			(202,000	)

Determine the following account balances as of December 31, 2018:

a.Investment in Jasmine Company

b.Equity in Subsidiary Earnings

c.Consolidated Net Income

d.Consolidated Equipment (net)

e.Consolidated Buildings (net)

f.Consolidated Goodwill (net)

g.Consolidated Common Stock

h.Consolidated Retained Earnings, 12/31/18

Answer 1

  
Part A Schedule 1 Acquisition-Date Fair Value Allocation and Amortization Particulars Jasmines acquisition-date fair value Amount $258100 Book value of Jasmine ($189500) Fair value in excess of book value $68600 Particulars Useful Life (B) (A) $68000 Depreciation (A/B) $8500 Equipment 8 yrs Buildings (overvalued) ($15,000) 20 yrs ($750) Goodwill $15,600 indefinite $0 Total $7750 Investment in Jasmine Company12/31/11 Particulars Jasmines acquisition-date fair value Amount $258100 2016 Increase in book value of subsidiary $55400 2016 Excess amortizations ($7750) 2017 Increase in book value of subsidiary $40500 2017 Excess amortizations ($7750) 2018 Increase in book value of subsidiary $13,000 2018 Excess amortizations ($7750) Investment in Jasmine Company $343750

Part B Equity in Subsidiary Earnings Particulars Income accrual Amount $33,000 Excess amortizations ($7750) Equity in subsidiary earnings $25250 Part C Consolidated Net Income Particulars Consolidated revenues (add book values) Amount $538000 Consolidated expenses (add book values) ($436,000) Excess amortization expenses ($7750) Consolidated net income $94250 Part D. Consolidated Equipment Particulars Book values added together Amount $592500 Allocation of purchase price $68000 Excess depreciation ($8500 x 3) ($25500) Consolidated equipment $635000 E. Consolidated Buildings Particulars Book values added together Amount $373300 Allocation of purchase price ($15,000) Excess depreciation ($750 x 3) $2250 Consolidated buildings $360550

Part F Consolidated goodwill Allocation of excess fair value to Goodwill = $15,600 g. Consolidated Common Stock - $290,000 As a purchase, the parent's balance of $290,000 is used (the acquired company's common stock will be eliminated each year on the consolidation worksheet). h. Consolidated Retained Earnings $436,000 Tyler's balance of $436,000 is equal to the consolidated total because the equity method has been applied