On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000, retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following: Inventory Purchases Dividends Declared $56,000 66,000 from Corgan $310,000 330,000 Net Income $360,000 340,000 2020 2021 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 50 percent of the current year purchases remain in Smashing's inventory. a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021. b. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000, retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing. During the next two years, Smashing reported the following: Inventory Purchases Dividends Declared $56,000 66,000 from Corgan $310,000 330,000 Net Income $360,000 340,000 2020 2021 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 50 percent of the current year purchases remain in Smashing's inventory. a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021. b. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
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
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 19E
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On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, In., for a total
of $1,600,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $910,000,
retained earnings of $460,000, and a noncontrolling interest fair value of $400,000. Corgan attributed the excess of fair
value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to
account for its investment in Smashing.
During the next two years, Smashing reported the following:
Inventory
Dividends
Purchases
Net Income
Declared
from Corgan
$310,000
330,000
2020
$360,000
340,000
$56,000
66,000
2021
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 50 percent of the
current year purchases remain in Smashing's inventory.
a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
b. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
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