Problem

Following are selected accounts for Mergaronite Company and Hill, Inc.,as of December 31,...

Following are selected accounts for Mergaronite Company and Hill, Inc.,as of December 31, 2013. Several of Mergaronite’s accounts have been omitted. Credit balances are indicated by parentheses.

 

 

Mergaronite

Hill

Revenues

 $(600,000)

$(250,000)

Cost of goods sold

 280,000

100,000

Depredation expense

 120,000

50,000

Investment income

 Not given

NA

Retained earnings, 1/1/13

 (900,000)

(600,000)

Dividends paid

 130,000

40,000

Current assets

 200,000

690,000

Land

 300,000

90,000

Buildings (net)

 500,000

140,000

Equipment (net)

 200,000

250,000

Liabilities

 (400,000)

(310,000)

Common stock

 (300,000)

(40,000)

Assume that Mergaronite took over Hill on January 1, 2009, by issuing 7,000 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2009, Hill’s land was undervalued by $20,000. its buildings were overvalued by $30,000, and equipment was undervalued by $60,000. The buildings had a 10-year life; the equipment had a 5-year life. A customer list with an appraised value of 5100,000 was developed internally by Hill and was to be written off over a 20-year period.

a. Determine and explain the December 31,2013, consolidated totals for the following accounts:

Revenues

Amortization Expense

Customer List

Cost of Goods Sold

Buildings

Common Stock

Depreciation Expense

Equipment

Additional Paid-in Capital

b. In requirement (a), why can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?

c. If the parent uses the equity method, what consolidation entries would be used on a 2013 worksheet?

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