Question

Haynes, Inc., obtained 100 percent of Turner Company's common stock on January 1, 2017, by issuing 10,700 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 $114,800. However, its equipment (with a five-year remaining life) was undervalued by $8,800 in the company's accounting records. Also, Turner had developed a customer list with an assessed value of $36,900, 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 (660,000) 450,000 Not given 110,000 Turner $ (375,000) 207,000 Revenues Expenses Investment income Dividends declared 80,000 The following balances come from the individual accounting records of these two companies as of December 31, 2018: $ Turner $(440,000) 242,500 Revenues Expenses Investment income Dividends declared Equipment Haynes (831,000) 477,600 Not given 120,000 546,000 60,000 360,000 a. What balance does Haynes's Investment in Turner account show on December 31, 2018, when the equity method is applied? b. What is the consolidated net income for the year ending December 31, 2018? C-1. What is the consolidated equipment balance as of December 31, 2018? c-2. Would this answer be affected by the investment method applied by the parent? 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. Complete this question by entering your answers in the tabs below.

Answer 1

a)

an allocation of the acquisition price
acquisition fair value(10,700 * 15)	160,500
Book value equivalency	(114,800)
excess of turner fair value over book value	45,700
Excess fair value assigned to specific			Annual excess
accounts based on fair value			Amortization
equipment	8,800	5	1,760
Customer list	36,900	10	3,690
Acquisition fair value	160,500
Income accrual 2017	168,000
Dividends paid by Turner	(80,000)
Amortization	(3,690)
Income accrual 2018	197,500
Dividends paid by Turner	(60,000)
amortization	(3,690)
Investment in Turner account balance	378,620

b)

Net income of Haynes	$353,400
Net income of Turner	$197,500
Depreciation expense	(1,760)
Amortization expenses	(3,690)
	$545,450

c 1)

Equipment balance haynes	546,000
Equipment balance Turner	360,000
Allocation based on fair value	8,800
Depreciation for 2017 - 2018(1760 * 2)	(3,520)
	587,280

c 2)

No, this answer will not be affected by the investment method applied by the parents

d)

If the initial value method was applied during 2017, the parent would have recorded dividend income of $80,000 rather than $168,000

Therefore, this result in undetstated net income by (168,000 - 80,000)=88,000

less:amortization expenses(88,000 - 5,450)=$82,550.Therefore , beginning retained earnings is understated by $82,550

Dec 31	Investment in Turner	82,550
	retained earnings		82,550
Prepare entry C if the parent used the partial equity method
Dec 31	Retained earnings	5,450
	Investment in Turner		5,450

Prepare entry C if the parent used the equity method

Dec 31 No journal entry required