Following are several account balances taken from the records of Karson and Reilly as of December 31, 2011. A few asset accounts have been omitted here. All revenues, expenses, and dividends occurred evenly throughout the year. Annual tests have indicated no goodwill impairment.
| Karson | Reilly |
Sales | $ (800,000) | $(500,000) |
Cost of goods sold | 400,000 | 280,000 |
Operating expenses | 200,000 | 100,000 |
Investment income | not given | –0– |
Retained earnings, 1/1 | (1,400,000) | (700,000) |
Dividends | 80,000 | 20,000 |
Trademarks | 600,000 | 200,000 |
Royalty agreements | 700,000 | 300,000 |
Licensing agreements | 400,000 | 400,000 |
Liabilities | (500,000) | (200,000) |
Common stock ($10 par value) | (400,000) | (100,000) |
Additional paid-in capital | (500,000) | (600,000) |
On July 1, 2011, Karson acquired 80 percent of Reilly for $1,330,000 cash consideration. In addition, Karson agreed to pay additional cash to the former owners of Reilly if certain performance measures are achieved after three years. Karson assessed a $30,000 fair value for the contingent performance obligation as of the acquisition date and as of December 31, 2011.
On July 1, 2011, Reilly’s assets and liabilities had book values equal to their fair value except for some trademarks (with 5-year remaining lives) that were undervalued by $150,000. Karson estimated Reilly’s total fair value at $1,700,000 on July 1, 2011.
For a consolidation prepared at December 31, 2011, what balances would be reported for the following?
Sales | Consolidated Net Income |
Expenses | Retained Earnings, 1/1 |
Noncontrolling Interest in | Trademarks |
Subsidiary’s Net Income | Goodwill |
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