Good Corporation acquired 80 percent of the outstanding stock of Morning, Inc., on January 1, 2008, for $1,400,000 in cash, debt, and stock. One of Morning’s buildings, with a 10-year remaining life, was undervalued on the company’s accounting records by $80,000. Also, Morning’s newly developed unpatented technology, with an estimated 10-year life, was assessed to have a fair value of $550,000.
During subsequent years, Morning reports the following:
| Net Income | Dividends Paid |
2008 | $180,000 | $100,000 |
2009 | 200,000 | 100,000 |
2010 | 300,000 | 100,000 |
2011 | 400,000 | 120,000 |
The following trial balances are for these two companies as of December 31, 2011. Morning owes Good $100,000 as of this date.
|
| Good | Morning |
| Debits |
|
|
Cash |
| $ 300,000 | $ 200,000 |
Receivables |
| 700,000 | 400,000 |
Inventory |
| 400,000 | 500,000 |
Investment in Morning |
| 1,400,000 | –0– |
Land |
| 700,000 | 600,000 |
Buildings (net) |
| 300,000 | 700,000 |
Operating expenses |
| 400,000 | 100,000 |
Dividends paid |
| 380,000 | 120,000 |
Total debits |
| $4,580,000 | $2,620,000 |
| Credits |
|
|
Liabilities |
| $ 200,000 | $ 620,000 |
Common stock |
| 1,000,000 | 460,000 |
Additional paid-in capital |
| 600,000 | 40,000 |
Retained earnings, 1/1/11 |
| 1,800,000 | 1,000,000 |
Revenues |
| 884,000 | 500,000 |
Dividend income |
| 96,000 | –0– |
Total credits |
| $4,580,000 | $2,620,000 |
Using the purchase method, prepare consolidated balances for this business combination for 2011.
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