Chapter 3, Problem 4DYS

a.

To determine

Compute consolidated balances for Company I and Company C.

Explanation of Solution

Consolidated balances for Company I and Company C:

Income statement	Company I	Company C	Debit	Credit	Consolidated Balances
Revenues	($990,000)	($210,000)			($1,200,000)
Cost of goods sold	$500,000	$90,000			$590,000
Depreciation expense	$100,000	$5,000			$105,000
Amortization expense	$55,000	$18,000	E 20,000		$93,000
Equity earnings from Company C	($40,000)		I 40,000		$                      -
Net income	($375,000)	($97,000)			($412,000)
Balance Sheet
Current assets	$960,000	$355,000			$1,315,000
Investment in Company C	$670,000	$                  -	*C 60,000	S 580,000
				A 150,000	$                      -
Equipment	$765,000	$225,000			$990,000
Trademark	$235,000	$100,000	A 36,000	E 4,000	$367,000
Existing technology		$45,000	A 64,000	E 16,000	$93,000
Goodwill	$450,000	$                  -	A 50,000		$500,000
Total assets	$3,080,000	$725,000			$3,265,000
Liabilities	($780,000)	($88,000)			($868,000)
Common stock	($500,000)	($100,000)	S 100,000		($500,000)
Additional paid-in capital	($120,000)	($30,000)	S 30,000		($120,000)
Retained earnings	($1,680,000)	($507,000)			($1,777,000)
Total liabilities and equity	($3,080,000)	($725,000)	$850,000	$850,000	($3,265,000)

Table: (1)

Working note:

Statement of retained earnings	Company I	Company C	Debit	Credit	Consolidated Balances
Retained earnings on 01/01	($1,555,000)	($450,000)	S 450,000	*C 60,000	($1,615,000)
Net Income	($375,000)	($97,000)			($412,000)
Dividends declared	$250,000	$40,000		I 40,000	$250,000
Retained earnings on 31/12	($1,680,000)	($507,000)			($1,777,000)

Table: (2)

b.

To determine

Prepare a second spreadsheet that shows a 2015 impairment loss for the entire amount of goodwill from Company C acquisition.

Explanation of Solution

Spreadsheet that shows a 2015 impairment loss for the entire amount of goodwill from Company C acquisition:

Income statement	Company I	Company C	Debit	Credit	Consolidated Balances
Revenues	($990,000)	($210,000)			($1,200,000)
Cost of goods sold	$500,000	$90,000			$590,000
Depreciation expense	$100,000	$5,000			$105,000
Amortization expense	$55,000	$18,000	E 20,000		$93,000
Impairment loss	$50,000				$50,000
Equity earnings from Company C	($40,000)		I 40,000		$                      -
Net income	($325,000)	($97,000)			($362,000)
Balance Sheet
Current assets	$960,000	$355,000			$1,315,000
Investment in Company C	$620,000	$                  -	*C 60,000	S 580,000
				A 100,000	$                      -
Equipment	$765,000	$225,000			$990,000
Trademark	$235,000	$100,000	A 36,000	E 4,000	$367,000
Existing technology		$45,000	A 64,000	E 16,000	$93,000
Goodwill	$450,000	$                  -			$450,000
Total assets	$3,030,000	$725,000			$3,215,000
Liabilities	($780,000)	($88,000)			($868,000)
Common stock	($500,000)	($100,000)	S 100,000		($500,000)
Additional paid-in capital	($120,000)	($30,000)	S 30,000		($120,000)
Retained earnings	($1,630,000)	($507,000)			($1,727,000)
Total liabilities and equity	($3,030,000)	($725,000)	$850,000	$850,000	($3,215,000)

Table: (3)

Working note:

Statement of retained earnings	Company I	Company C	Debit	Credit	Consolidated Balances
Retained earnings on 01/01	($1,555,000)	($450,000)	S 450,000	*C 60,000	($1,615,000)
Net Income	($325,000)	($97,000)			($362,000)
Dividends declared	$250,000	$40,000		I 40,000	$250,000
Retained earnings on 31/12	($1,630,000)	($507,000)			($1,727,000)

Table: (4)