Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share. Michael Company 12/31/21 Aaron Company 12/31/21 Revenues $ (610,000 ) $ (370,000 ) Cost of goods sold 270,000 140,000 Amortization expense 115,000 80,000 Dividend income (5,000 ) 0 Net income $ (230,000 ) $ (150,000 ) Retained earnings, 1/1/21 $ (880,000 ) $ (490,000 ) Net income (above) (230,000 ) (150,000 ) Dividends declared 90,000 5,000 Retained earnings, 12/31/21 $ (1,020,000 ) $ (635,000 ) Cash $ 110,000 $ 15,000 Receivables 380,000 220,000 Inventory 560,000 280,000 Investment in Aaron Company 470,000 0 Copyrights 460,000 340,000 Royalty agreements 920,000 380,000 Total assets $ 2,900,000 $ 1,235,000 Liabilities $ (780,000 ) $ (470,000 ) Preferred stock (300,000 ) 0 Common stock (500,000 ) (100,000 ) Additional paid-in capital (300,000 ) (30,000 ) Retained earnings, 12/31/21 (1,020,000 ) (635,000 ) Total liabilities and equity $ (2,900,000 ) $ (1,235,000 ) On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021. Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements?
Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share. Michael Company 12/31/21 Aaron Company 12/31/21 Revenues $ (610,000 ) $ (370,000 ) Cost of goods sold 270,000 140,000 Amortization expense 115,000 80,000 Dividend income (5,000 ) 0 Net income $ (230,000 ) $ (150,000 ) Retained earnings, 1/1/21 $ (880,000 ) $ (490,000 ) Net income (above) (230,000 ) (150,000 ) Dividends declared 90,000 5,000 Retained earnings, 12/31/21 $ (1,020,000 ) $ (635,000 ) Cash $ 110,000 $ 15,000 Receivables 380,000 220,000 Inventory 560,000 280,000 Investment in Aaron Company 470,000 0 Copyrights 460,000 340,000 Royalty agreements 920,000 380,000 Total assets $ 2,900,000 $ 1,235,000 Liabilities $ (780,000 ) $ (470,000 ) Preferred stock (300,000 ) 0 Common stock (500,000 ) (100,000 ) Additional paid-in capital (300,000 ) (30,000 ) Retained earnings, 12/31/21 (1,020,000 ) (635,000 ) Total liabilities and equity $ (2,900,000 ) $ (1,235,000 ) On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021. Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter15: Contributed Capital
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Problem 2MC: Cary Corporation has 50,000 shares of 10 par common stock authorized. The following transactions...
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Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share.
| Michael Company 12/31/21 |
Aaron Company 12/31/21 |
||||||
| Revenues | $ | (610,000 | ) | $ | (370,000 | ) | |
| Cost of goods sold | 270,000 | 140,000 | |||||
| Amortization expense | 115,000 | 80,000 | |||||
| Dividend income | (5,000 | ) | 0 | ||||
| Net income | $ | (230,000 | ) | $ | (150,000 | ) | |
| $ | (880,000 | ) | $ | (490,000 | ) | ||
| Net income (above) | (230,000 | ) | (150,000 | ) | |||
| Dividends declared | 90,000 | 5,000 | |||||
| Retained earnings, 12/31/21 | $ | (1,020,000 | ) | $ | (635,000 | ) | |
| Cash | $ | 110,000 | $ | 15,000 | |||
| Receivables | 380,000 | 220,000 | |||||
| Inventory | 560,000 | 280,000 | |||||
| Investment in Aaron Company | 470,000 | 0 | |||||
| Copyrights | 460,000 | 340,000 | |||||
| Royalty agreements | 920,000 | 380,000 | |||||
| Total assets | $ | 2,900,000 | $ | 1,235,000 | |||
| Liabilities | $ | (780,000 | ) | $ | (470,000 | ) | |
| (300,000 | ) | 0 | |||||
| Common stock | (500,000 | ) | (100,000 | ) | |||
| Additional paid-in capital | (300,000 | ) | (30,000 | ) | |||
| Retained earnings, 12/31/21 | (1,020,000 | ) | (635,000 | ) | |||
| Total liabilities and equity | $ | (2,900,000 | ) | $ | (1,235,000 | ) | |
On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period.
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Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021.
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Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements?
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