Comprehensive Consolidation Worksheet; Equity Method [AICPA Adapted]
Fran Corporation acquired all outstanding $10 par value voting common stock of Brey Inc. on January 1, 20X9, in exchange for 25,000 shares of its $20 par value voting common stock. On December 31, 20X8, Fran’s common stock had a closing market price of $30 per share on a national stock exchange. The acquisition was appropriately accounted for under the acquisition method. Both companies continued to operate as separate business entities maintaining separate accounting records with years ending December 31. Fran accounts for its investment in Brey stock using the equity method without adjusting for unrealized intercompany profits.
On December 31, 20X9, the companies had condensed financial statements as follows:
| Fran Corporation | Brey Inc. |
Income Statement | Dr (Cr) | Dr (Cr) |
Net Sales | $(3,800,000) | $(1,500,000) |
Income from Brey | (128,000) |
|
Gain on Sale of Warehouse | (30,000) |
|
Cost of Goods Sold | 2,360,000 | 870,000 |
Operating Expenses (including depreciation) | 1,100,000 | 440,000 |
Net Income | $ (498,000) | $ (190,000) |
Retained Earnings Statement |
|
|
Balance, 1/1/X9 | $ (440,000) | $ (156,000) |
Net Income | (498,000) | (190,000) |
Dividends Paid |
| 40,000 |
Balance, 12/31/X9 | (938,000) | $ (306,000) |
Balance Sheet |
|
|
Assets: |
|
|
Cash | $ 570,000 | $ 150,000 |
Accounts Receivable (net) | 860,000 | 350,000 |
Inventories | 1,060,000 | 410,000 |
Land, Plant, and Equipment | 1,320,000 | 680,000 |
Accumulated Depreciation | (370,000) | (210,000) |
Investment in Brey | 838,000 |
|
Total Assets | $ 4,278,000 | $ 1,380,000 |
Liabilities and Stockholders’ Equity: |
|
|
Accounts Payable and Accrued Expenses | $(1,340,000) | $ (594,000) |
Common Stock | (1,700,000) | (400,000) |
Additional Paid-in Capital | (300,000) | (80,000) |
Retained Earnings | (973,000) | (306,000) |
Total Liabilities and Equity | $(4,278,000) | $(1,380,000) |
Additional Information
There were no changes in the Common Stock and Additional Paid-in Capital accounts during 20X9 except the one necessitated by Fran’s acquisition of Brey.
At the acquisition date, the fair value of Brey’s machinery exceeded its book value by $54,000. The excess cost will be amortized over the estimated average remaining life of six years. The fair values of all of Brey’s other assets and liabilities were equal to their book values. At December 31, 20X9, Fran’s management reviewed the amount attributed to goodwill as a result of its purchase of Brey’s common stock and concluded an impairment loss of $35,000 should be recognized in 20X9.
During 20X9, Fran purchased merchandise from Brey at an aggregate invoice price of $180,000, which included a 100 percent markup on Brey’s cost. At December 31, 20X9, Fran owed Brey $86,000 on these purchases, and $36,000 of this merchandise remained in Fran’s inventory. Assume Fran uses the fully adjusted equity method.
Required
Develop and complete a consolidation worksheet that would be used to prepare a consolidated income statement and a consolidated retained earnings statement for the year ended December 31, 20X9, and a consolidated balance sheet as of December 31, 20X9. List the accounts in the worksheet in the same order as they are listed in the financial statements provided. Formal consolidated statements are not required. Ignore income tax considerations. Supporting computations should be in good form.
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