Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $662,000 cash. At January 1, 2016, Sedona’s net assets had a total carrying amount of $463,400. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $96,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $20,500 dividend. Sedona recorded net income of $99,500 in 2016 and $110,300 in 2017.
Selected account balances from the two companies’ individual records were as follows:
Phoenix
Sedona
2018 Revenues
$
544,000
$
381,000
2018 Expenses
387,000
280,000
2018 Income from Sedona
63,350
Retained earnings 12/31/18
270,350
224,500
On its December 31, 2018, consolidated…
Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). As of that date, Bradford had stockholders’ equity totaling $105,000. Land shown on Bradford’s accounting records was undervalued by $10,000. Equipment (with a five-year remaining life) was undervalued by $5,000. A secret formula developed by Bradford was appraised at $20,000 with an estimated life of 20 years.
Following are the separate financial statements for the two companies for the year ending December 31, 2018. There were no intra-entity payables on that date. Credit balances are indicated by parentheses.
a. Explain how Allen derived the $66,000 balance in the Subsidiary Earnings account.
b. Prepare a worksheet to consolidate the financial information for these two companies
Allen Company acquired 100 percent of Bradford Company's voting stock on January 1, 2017, by Issuing 10,000 shares of its $10 par
value common stock (having a fair value of $17.50 per share). As of that date, Bradford had stockholders' equity totaling $112,150. Land
shown on Bradford's accounting records was undervalued by $19.700. Equipment (with a five-year remaining life) was undervalued by
$6,750. A secret formula developed by Bradford was appraised at $36,400 with an estimated life of 20 years.
The following are the separate financial statements for the two companies for the year ending December 31, 2021. There were no
Intra-entity payables on that date. Credit balances are indicated by parentheses.
Allen
Company
Revenues
$ (521,000)
Bradford
Company
$ (303,750)
115,500
54,000
e
Cost of goods sold
Depreciation expense
Subsidiary earnings
172,000
189,000
(131,080)
(291,080)
Net income
$
$ (134,250)
Retained earnings, 1/1/21
Net income (above)
$ (762,000)
(291,080)
175,500
$…
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