On January 1, 2010, Bretz, Inc., acquired 60 percent of the outstanding shares of Keane Company for $573,000 in cash. The price paid was proportionate to Keane’s total fair value although at the date of acquisition, Keane had a total book value of $810,000. All assets acquired and liabilities assumed had fair values equal to book values except for a copyright (six-year remaining life) that was undervalued in Keane’s accounting records by $120,000. During 2010, Keane reported net income of $150,000 and paid cash dividends of $80,000. On January 1, 2011, Bretz bought an additional 30 percent interest in Keane for $300,000.
The following financial information is for these two companies for 2011. Keane issued no additional capital stock during either 2010 or 2011.
| Bretz, Inc. | Keane Company |
| ||
Revenues | $ (402,000) | $ (300,000) |
Operating expenses | 200,000 | 120,000 |
Equity in Keane earnings | (144,000) | –0– |
Net income | $ (346,000) | $ (180,000) |
Retained earnings 1/1 | $ (797,000) | $ (500,000) |
Net income (above) | (346,000) | (180,000) |
Dividends paid | 143,000 | 60,000 |
Retained earnings 12/31 | $(1,000,000) | $ (620,000) |
Current assets | $ 224,000 | $ 190,000 |
Investment in Keane Company | 994,500 | –0– |
Trademarks | 106,000 | 600,000 |
Copyrights | 210,000 | 300,000 |
Equipment (net) | 380,000 | 110,000 |
Total assets | $ 1,914,500 | $ 1,200,000 |
Liabilities | $ (453,000) | $ (200,000) |
Common stock | (400,000) | (300,000) |
Additional paid-in capital | (60,000) | (80,000) |
Additional paid-in capital—step acquisition | (1,500) | –0– |
Retained earnings 12/31 | (1,000,000) | (620,000) |
Total liabilities and equities | $(1,914,500) | $(1,200,000) |
a. Show the journal entry Bretz made to record its January 1, 2011, acquisition of an additional 30 percent of Keane Company shares.
b. Prepare a schedule showing how Bretz determined the Investment in Keane Company balance as of December 31, 2011.
c. Prepare a consolidated worksheet for Bretz, Inc., and Keane Company for December 31, 2011.
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