Question

Patrick Corporation acquired 100 percent of O'Brien Company's outstanding common stock on January 1 for $623,500 in cash. O'Brien reported net assets with a carrying amount of $364,000 at that time. Some of O'Brien's assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Book Values $ 86,500 Trademarks (indefinite life) Customer relationships (5-year remaining life) Equipment (10-year remaining life) Fair Values $ 215,500 92,400 305,300 347,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year. The following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O'Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Revenues Cost of goods sold Depreciation expense Amortization expense Income from O'Brien Net income Retained earnings 1/1 Net income Dividends declared Retained earnings 12/31 Cash Receivables Inventory Investment in O'Brien Trademarks Customer relationships Equipment (net) Goodwill Patrick $(1,867,500) 498,000 88, 200 37,400 (377,490) $(1,621,390) $ (736,000) (1,621,390) 152,000 $(2,205, 390) $ 222,000 422,000 216,000 910,990 598,000 O'Brien $ (896,000) 416,000 88, 200 0 0 $ (391, 800) $ (264,000) (391,800) 90,000 $ (565, 800) $ 130,500 83,100 223,000 65,400 0 292,000 © 1,078,000 T-L. & AAC non 701 an

Answer 1

Difference B-A) $ 129,000 92,400 (44700 Albes Calculation of Overe value and Oudervalued assets Book Values (A) Four Values (B) $ 861800 215,500 Tradmauk 92,400 Customer relablonlups s! 347.000 305,300 Equipment Calculation of Goodwill on acquirition y Acquisition price paid by Patrick $ 623,500 Book Value of O'Beven (364,000) Encen of four Value over book Value ( 259,500 Allocation of Excess value to cool guitial Life Specified asos- Don & Value CA) CB) Trademarles Oo229,000 Customer relationship on 92,400 5 Equipment P8, 141,700) lo 900, 1719,700 Goodwill (259,500 -179,700) quo. -74,800 Total lops 259,500 Amortization per year CelBJ 18,480 (4100) 14310 14.310

aquity methool (a) Investment method in Reavon Net Income of o'Boyen Les amortization Esep. Adjust het Income of o 'Berten Income from O'Brien $ 391,800 (19310) $ 377,490 $ 372,490 Part 6) Revenues Cost of good sold Amortization Expense Depreciation Ezepesse Income from o Boven Net Income Retained Earwiga 1/1 Dividends declared Retached Eastendigs 12431 Cash Receivables Inventory Income from o'Brien Trade Marks (5980004 6540ot 129,000) (2763,500) Ima 914,000 -37,400 176.400 317,490 1,621,390 736,000 152,000 (2.205-390) 352500 505,100 439,000 792, 400

Spr (400,000 ) Customer relationship (924400-18480 73,920 Equipeout Chet) (107370 +292000–41700) 1328,300 79.800 $3,515, 190 1969,8001 Goodwill Total Assets Labelline 3 Common stock Retained earnings 12/3) Total biobiliate Equity (2,205,390) $ 3,575, 190

Cast of goods sold Patrick Corporation and consolidated Subsidiary o'Berlen Consolibladed Worksheet for year ending Dec. 31 Accounts Patruck Consolidale Ewbites O'Bruilen til du Consdicated Totals Revenues $(1,867,560) $1896,000) (2,763,500) 498,000 416,000 t 914,000 Deprecibution Exp 89,200 88200 4170 12, 230 Amortization Sup. 37,400 18,480 55,880 Income from O'Brien (377,490) 1317,490 Net Income 1,621,390) $ (397,800) (1621,390) Rebuined Earnings 1/1 (736,1000) 264,000 264,000 (736,000) Net Income Cabove) (1,621,390) ( 391,800) (1,621,390) Dividends Declared 152,000 90,000 90,000 182,000 Retained Earnings 12/31982, 265, 390) 575,800 (2,205,390) 222,000 130,500 352,500 Receivables 422,000 83,760 565, loo Inventory 216,000 223,000 439,000 Investment ind Berlen 910,90 90,000 1,000,990 Trademarks 598,000 65,400 124,600 792,400 Customer relationship 92,400 18,480 73,920 Equipment (net) 1,876,000 092,000 4170 91,700 1,330,470 Goodwill 79,800 79, 800 Total assets 4240990 $3,446,990 794,000 1969800 Liabilities 1841,600) 128,200) (00/000 1400,000) Commen stock (400,000) 2700,000) Relaimed Earnings (above) Q,208,390) (565,800) (2205390) Total liabilities & Equity &(3, 446,990) (794,000) $ 1155,340 3,575,190 0 0 O $1,155340