Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $732,300 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $604,900. Credit balances are indicated by parentheses. Adams Clay Current assets $ 326,000 $ 290,000 Investment in Clay 732,300 0 Equipment 781,900 526,000 Liabilities (280,000 ) (170,000 ) Common stock (350,000 ) (150,000 ) Retained earnings, 1/1/20 (1,210,200 ) (496,000 ) In 2020, Clay earns a net income of $62,700 and declares and pays a $5,000 cash dividend. In 2020, Adams reports net income from its own operations (exclusive of any income from Clay) of $193,000 and declares no dividends. At the end of 2021, selected account balances for the two companies are as follows: Adams Clay Revenues $ (452,000 ) $ (272,000 ) Expenses 327,700 204,000 Investment income Not given 0 Retained earnings, 1/1/21 Not given (553,700 ) Dividends declared 0 8,000 Common stock (350,000 ) (150,000 ) Current assets 651,000 342,800 Investment in Clay Not given 0 Equipment 701,900 574,900 Liabilities (208,900 ) (130,700 )
Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $732,300 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $604,900. Credit balances are indicated by parentheses.
| Adams | Clay | |||||
| Current assets | $ | 326,000 | $ | 290,000 | ||
| Investment in Clay | 732,300 | 0 | ||||
| Equipment | 781,900 | 526,000 | ||||
| Liabilities | (280,000 | ) | (170,000 | ) | ||
| Common stock | (350,000 | ) | (150,000 | ) | ||
| (1,210,200 | ) | (496,000 | ) | |||
In 2020, Clay earns a net income of $62,700 and declares and pays a $5,000 cash dividend. In 2020, Adams reports net income from its own operations (exclusive of any income from Clay) of $193,000 and declares no dividends. At the end of 2021, selected account balances for the two companies are as follows:
| Adams | Clay | |||||
| Revenues | $ | (452,000 | ) | $ | (272,000 | ) |
| Expenses | 327,700 | 204,000 | ||||
| Investment income | Not given | 0 | ||||
| Retained earnings, 1/1/21 | Not given | (553,700 | ) | |||
| Dividends declared | 0 | 8,000 | ||||
| Common stock | (350,000 | ) | (150,000 | ) | ||
| Current assets | 651,000 | 342,800 | ||||
| Investment in Clay | Not given | 0 | ||||
| Equipment | 701,900 | 574,900 | ||||
| Liabilities | (208,900 | ) | (130,700 | ) | ||
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What are the December 31, 2021, Investment Income and Investment in Clay account balances assuming Adams uses the:
- Equity method.
- Initial value method.
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What is the amount of Consolidated Expenses in its December 31, 2021, consolidated income statement under each of the following methods?
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What is the amount of Consolidated Equipment in its December 31, 2021, consolidated balance sheet under each of the following methods?
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What is Adams’s January 1, 2021, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the:
- Equity value method.
- Initial value method.
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What worksheet adjustment to Adams’s January 1, 2021, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method?
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Prepare the worksheet entry to eliminate Clay’s
stockholders’ equity. -
What is consolidated net income for 2021?
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