Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2020, by issuing 8,500 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 $88,750. However, its equipment (with a five-year remaining life) was undervalued by $7,250 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $31,500, 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, 2020:

	Haynes			Turner
Revenues	$	(692,000	)	$	(275,000	)
Expenses		449,000			130,000
Investment income		Not given			0
Dividends declared		120,000			70,000

The following balances come from the individual accounting records of these two companies as of December 31, 2021:

	Haynes			Turner
Revenues	$	(886,000	)	$	(348,750	)
Expenses		471,200			163,100
Investment income		Not given			0
Dividends declared		140,000			50,000
Equipment		532,000			373,000

1. a. What balance does Haynes’s Investment in Turner account show on December 31, 2021, when the equity method is applied?

2. b. What is the consolidated net income for the year ending December 31, 2021?

3. c-1. What is the consolidated equipment balance as of December 31, 2021?

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, 2021 by using initial value, partial equity and equity method.

a. Investment in Turner account b. Consolidated net income C-1. Consolidated equipment c-2. Would this answer be affected by the investment method applied by the parent?

Answer 1

Solution: Haynes investment in turner account on dec 31, 2021: A Acquisition Fair Value paid by Haynes Book Value Equivalence (=88750+7250+31500 $ Excess of Turner fair value over book value $ Excess of Turner fair value over book value $ 1,27,500 -88,750 38,750 Amortization Calculation: Particulars Equipment Customer List Excess Fair Value $ $ Life 7,2505 Yrs 31,500 10 Yrs Excess Amortization $ 1,450 $ 3,150 $ 4,600 Acquisition fair value (above calculated) Income Accrual 2020 (Revenue-Expenses) Dividend declared by Turner Amortization above Income Accrual for year 2021 $ $ $ $ $ 1,27,500 1,45,000 -70,000 -4,600 1,85,650 dividend declared by turner Amortization Investment in Turner account Balance $ $ $ -50,000 -4,600 3,28,950 b Calculation Consolidated Net Income for yearr ending 31 Dec 2021 Net Income of Haynes $ 4,14,800 Net Income of Turner $ 1,85,650 Depreciation Expenses $ -1,450 Amortization Expenses $ -3,150 Consolidated Net Income $ 5,95,850 C-1 Calculation Consolidated Equipment Balance as on Dec 31 2021 Equipment Balance Haynes $ 5,32,000 Equipment Balance Turner $ 3,73,000 Allocation based on fair value -above $ 7,250 Depreciation for 2 years $ 2,900 Consolidated Equipment Balance 2021 $ 9,15,150 --2 Parent Choice of an investment method has no impact on consolidated totals d Date 12/31/2021 Credit Preparation of Journal Entries: General Journal Investment in Turner Retained Earnings Debit $ 70,400 $ 70,400 12/31/2021 $ Retained Earnings To Investment in Turner 4,600 $ 4,600 12/31/2021 NO entry Required * Kindly Comment down for any clarifications/ queries and please upvote.