Question

Haynes, Inc., obtained 100 percent of Turner Company’s common stock on January 1, 2020, by issuing 9,300 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 $96,650. However, its equipment (with a five-year remaining life) was undervalued by $6,450 in the company’s accounting records. Also, Turner had developed a customer list with an assessed value of $36,400, 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:

	Haynes			Turner
Revenues	$	(690,000	)	$	(371,000	)
Expenses		479,000			197,000
Investment income		Not given			0
Dividends declared		110,000			80,000

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

	Haynes			Turner
Revenues	$	(851,000	)	$	(431,750	)
Expenses		504,200			235,200
Investment income		Not given			0
Dividends declared		130,000			70,000
Equipment		535,000			339,000

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.

Answer 1

1.Computation of company H’s Investment in Company T account on Dec 31st 2020 when equity method is applied.
Particulars	Amount	Working
Fair value	139500	(9300*15)
Net income
2020	174000	(371000-197000)
2021	196550	(431750-235200)
Dividend
2020	80000
2021	70000
Amorize expenses
2020	4930
2021	4930
	669910

Working note
Particulars	Amount in ($)
Acquistion value	139400
Book value of assets	9665
Excess of fair value over books	129735
		Remaining life	Annual amortization
Equipment	6450	5 years	1290 (6450/5)
Customer list	36400	10 years	3640 (36400/10)
		Total	4930

The Consolidated Net income for the year ending Dec 31st 2021 is as follows
Particulars	Amount	working
Net income of company H	346800	(851000-504200)
Net income of company T	196550	(431750-235200)
Depreciation expenses	1290	(6450/5)
Amorization expenses	3640	(36400/10)
Consolidated net income	548280

there will be no chance in investment balance due to change in method of accounting since due to consolidation

Consolidated equipment Balance as of Dec 31st 2021
Particular	Amount
Equipemnt balance of Company H	535000
Equipment Balance of Company T	339000
Fair value allocation	4833
Depreciation	2580
Consolidated balance of Equipment	881413