Question

Answers provided. Please explain how it is solved.

The following information applies to Questions 21-25.

On January 1, 2020, Adamson, Inc. acquired the outstanding voting common stock of Skyview Corp. for $600,000. Of this payment, $85,000 was allocated to undervalued equipment (with a five-year life). Any remaining excess was attributable to goodwill.

During 2020, Adamson bought inventory for $44,000 and sold it to Skyview for $98,500. 60% of these goods were still in the company's possession on December 31. The financial statements of the two companies as of December 31, 2020 are presented below.

	Adamson	Skyview
Sales revenue	$750,000	$440,000
Cost of goods sold	-414,975	-69,000
Gross profit	335,025	371,000
Operating expenses	-65,000	-75,000
Income (loss) from subsidiary	246,300	0
Net Income	$516,325	$296,000
Retained Earnings, 1/1/20	$670,000	$258,000
Net income	516,325	296,000
Dividends	-15000	-12000
Retained Earnings, 12/31/20	$1,171,325	$542,000
Cash and receivables	$325,000	$90,000
Inventory	440,000	126,000
Equity investment	834,300
Property, plant & equipment (Net)	1,273,025	635,000
Total Assets	$2,872,325	$851,000
Accounts payable	$652,000	$75,000
Accrued liabilities	245,000	56,000
Common stock	152,000	34,000
Additional paid-in capital	652,000	144,000
Retained Earnings, 12/31/20	1,171,325	542,000
Total Liabilities and Equities	$2,872,325	$851,000

21.      What is consolidated revenues? b.   $1,091,500

22.      What is consolidated operating expenses? d. $157,000

23.      What is consolidated cost of goods sold? a.   $418,175

24.      What is the consolidated balance for property, plant and equipment (net) on the December 31, 2020 balance sheet? b. $1,976,025

25.      What is consolidated inventory on the December 31, 2020 balance sheet? b.   $533,300

Answer 1

Working Notes

1.The main theme of the Consolidated statements is that all the comapnies whose financial statements are being consolidated are considered as one company.

So any transactions between these companies are considered as the transaction by company with its own. means a company by name ALPS is transacting with itsself which is not possible.

so all these intercompany transactions should be eliminated.

2.While calculating closing stock it haa the closing inventory with profit made by its own company. Which should not be done because inventory should be valued at cost. So the profit in closing stock value is eliminated in calculating the consolidated closing stock.

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