Question

man L03 43. Determining ending consolidated balances in the second year following the acquisition-Cost method Assume a parent company acquired a subsidiary on January 1, 2018. for $1.200,000. The purchase price was $650,000 in excess of the subsidiary's $550,000 book value of Stockholders' Equity on the acquisi tion date. Of this excess purchase price, $250,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $400,000 was assigned to Goodwill. On the acquisition date, the subsidiary reported retained camnings equal to $280,000. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The financial statements of the parent and its subsid- iary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales.. $5,000,000 $1,200,000 Assets Cost of goods sold (3,000,000) (700,000) Cash $ 800,000 $150,000 Gross profit 2,000,000 500,000 Accounts receivable 1,000,000 340,000 Investment income 40,000 Inventory 1,600,000 500,000 Operating expenses (1,500,000) (400,000) Equity investment 1,200,000 Net income.. $ 540,000 S 100,000 Property, plant and equipment (PPE), net .. 3,000,000 900,000 $7,600,000 $1,890.000 Statement of retained earnings: Beginning retained earnings... $1,500,000 $ 600.000 Liabilities and stockholders' equily Net income 540,000 100,000 Accounts payable $ 700.000 $ 140,000 Dividends (200,000) (40,000) Accrued abilities 900,000 220,000 Ending retained earnings $1,840,000 $ 660,000 Long term liabilities 2.500.000 600,000 Common stock 500,000 120.000 APIC... 1.100.000 150.000 Retained earnings 1.840,000 600,000 $7,600,000 $1,890.000

Answer 1

Solution ;

              Consoildated financial statement .

Sales	6200,000
Investment income	Nil
Operating expenses	1900,000
Inventories	2100,000
Equity investment	Nil
Property plant and equipment	3900,000
Goodwill	400,000
Commonstock	500,000
Retained earnings	2300,000