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 2018 impairment loss for the entire amount of goodwill from Company C acquisition.

Explanation of Solution

Spreadsheet that shows a 2018 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				50000
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)

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)