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 |
Depreciation 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) |
Additional paid-in capital | (50,000) | (160,000) |
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 $100,000 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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