Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2009. Adams paid a total of $603,000 in cash for these shares. The 10 percent non- controlling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams’s acquisition. On December 31, 2009, Barstow had the following account balances:
| Book Value | Fair Value |
Current assets | $ 160,000 | $ 160,000 |
Land | 120,000 | 150,000 |
Buildings (10-year life) | 220,000 | 200,000 |
Equipment (5-year life) | 160,000 | 200,000 |
Patents (10-year life) | –0– | 50,000 |
Notes payable (5-year life) | (200,000) | (180,000) |
Common stock | (180,000) | — |
Retained earnings, 12/31/09 | (280,000) | — |
December 31, 2011, adjusted trial balances for the two companies follow:
| Adams Corporation | Barstow, Inc. | |
| Debits |
|
|
Current assets |
| $ 610,000 | $ 250,000 |
Land |
| 380,000 | 150,000 |
Buildings |
| 490,000 | 250,000 |
Equipment |
| 873,000 | 150,000 |
Investment in Barstow, Inc |
| 702,000 | –0– |
Cost of goods sold |
| 480,000 | 90,000 |
Depreciation expense |
| 100,000 | 55,000 |
Interest expense |
| 40,000 | 15,000 |
Dividends paid |
| 110,000 | 70,000 |
Total debits |
| $3,785,000 | $1,030,000 |
| Credits |
|
|
Notes payable |
| $ 860,000 | $ 230,000 |
Common stock |
| 510,000 | 180,000 |
Retained earnings, 1/1/11 |
| 1,367,000 | 340,000 |
Revenues |
| 940,000 | 280,000 |
Investment income |
| 108,000 | –0– |
Total credits |
| $3,785,000 | $1,030,000 |
a. Prepare schedules for acquisition-date fair-value allocations and amortizations for Adams’s investment in Barstow.
b. Determine Adams’s method of accounting for its investment in Barstow. Support your answer with a numerical explanation.
c. Without using a worksheet or consolidation entries, determine the balances to be reported as of December 31, 2011, for this business combination.
d. To verify the figures determined in requirement (c) prepare a consolidation worksheet for Adams Corporation and Barstow, Inc., as of December 31, 2011.
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