Question

Haynes, Inc., obtained 100 percent of Turner Company's common stock on January 1, 2020, by issuing 7,300 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 $66,600. However, its equipment (with a five-year remaining life) was undervalued by $8,500 in the company's accounting records. Also, Turner had developed a customer list with an assessed value of $34,400, 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: Revenues Expenses Investment income Dividends declared Haynes Turner $ (727,000) $(345,000) 513,000 172,000 Not given 110,000 80,000 The following balances come from the individual accounting records of these two companies as of December 31, 2021: Revenues Expenses Investment income Dividends declared Equipment Haynes Turner $ (843,000) $(419,500) 536,200 202,900 Not given 130,000 70,000 525,000 302,000 a. What balance does Haynes's Investment in Turner account show on December 31, 2021, when the equity method is applied? b. What is the consolidated net income for the year ending December 31, 2021? c-1. What is the consolidated equipment balance as of December 31, 2021? 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, 2021 by using initial value, partial equity and equity method. Complete this question by entering your answers in the tabs below.

Answer 1

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

Investment in turner account.
Issue Share ( 7,300 x 15)	109,500
2020 income accural (345,000 - 172,000 )	172,000
2020 dividend paid by turner	(80,000)
2020 Amortization (Note 1)	(5,140)
Balance at end of 2020	196,360
Opening balance	196,360
2021 income accural (419,500 - 202,900 )	216,600
2021 dividend paid by turner	(70,000)
2021 Amortization (Note 1)	(5,140)
Balance at end of 2021	337,820

Note 1.

Amortization shedule
Particulars	Amount	Life	Annual Amortization.
Equipment	8,500	5	1,700
Customer List	34,400	10	3,440

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

Net income = $843,000 -536,200 + 419,500 - 202,900 - 5,140

Net income =$518,460.

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

Particulars	Amount
Equipment balance Haynes	525,000
Equipment balance Turner	302,000
Allocation based on fair value (above)	8,500
Depreciation for 2020‑2021	(3,400)
Consolidated equipment—December 31, 2021	832,100

C2. Would this answer be affected by the investment method applied by the parent.

No any impact on consolidated balance due to investment method.

d. Prepare entry *C for eah of the following method

If the initial value method was applied during 2020, the parent would have recorded dividend income of $80,000 rather than $173,000 (as equity income). Net income is, therefore, understated by $93,000. In addition, amortization expense of $5,140 was not recorded. Thus, the January 1, 2021, retained earnings is understated by $87,860 ($93,000 – $5,140). An Entry *C is necessary on the worksheet to correct this equity figure:

                  Investment in Turner ................................................. 87,860

                        Retained Earnings, 1/1/21 (Haynes) ................ 87,860

If the partial equity method was applied during 2020, the parent would have failed to record amortization expense of $4,600. Retained earnings are overstated by $4,600 and are corrected through Entry *C:

                  Retained Earnings, 1/1/21 (Haynes) ...................... 5,140

                        Investment in Turner ........................................... 5,140

If the equity method was applied during 2020, the parent's retained earnings are the same as the consolidated figure so that no adjustment is necessary.