Question

Determining ending consolidated balances in the third year following the acquisition-Equity method Assume that your company acquired a subsidiary on January 1, 2017. The purchase price was $1,000,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: Original Original [A] Asset Amount Useful Life Patent $700,000 10 years Goodwill 300,000 indefinite $1,000,000 The [A] assets with a useful life have been amortized as part of the parent's equity method accounting. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Equity income Operating expenses Net income Parent Subsidiary Balance sheet: $3,000,000 $1,100,000 Assets (2,000,000) (540,000) Cash 1,000,000 560,000 Accounts receivable 250,000 Inventory (450,000) (240,000) Equity investment $800,000 $320,000 Property, plant and equipment (PPE), net $700,000 $220,000 910,000 200,000 1,200,000 300,000 1,850,000 3,000,000 800,000 $7,660,000 $1,520,000 Statement of retained earnings: BOY retained earnings Net income Dividends $2,660,000 800,000 (200,000) $3,260,000 Ending retained eamings $400,000 Liabilities and stockholders' equity 320,000 Accounts payable (40,000) Accrued liabilities $680,000 Long term liabilities Common stock APIC Retained earnings $400,000 $90,000 500,000 120,000 1,000,000 250,000 500,000 300,000 2,000,000 80,000 3,260,000 680,000 $7,660,000 $1,520,000

Answer 1

Solution- The solution is as follows

(i)- Cogs-2540000

(ii)-Equity income-250000

(iii)-Operating expenses-690000

(iv)-Cash-920000

(v)-Equity investment-1850000

(vi)-PPE-1100000

(vii)Patent-630000

(viii)Common stock-500000

(ix)- Retained earnings-3920000