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a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024. b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.

a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024. b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vikram Bhai 

On January 1, 2023, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Incorporated, for a total of $910,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $770,000, retained earnings of $320,000, and a noncontrolling interest fair value of $390,000. 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: Items 2023 Net Income $ 220,000 200,000 Dividends Declared $ 42,000 Inventory Purchases from Corgan 52,000 $ 170,000 190,000 2024 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2023 and 2024, 30 percent of the current year purchases remain in Smashing's inventory. Required: a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024. b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
Transcribed Image Text:On January 1, 2023, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Incorporated, for a total of $910,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $770,000, retained earnings of $320,000, and a noncontrolling interest fair value of $390,000. 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: Items 2023 Net Income $ 220,000 200,000 Dividends Declared $ 42,000 Inventory Purchases from Corgan 52,000 $ 170,000 190,000 2024 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2023 and 2024, 30 percent of the current year purchases remain in Smashing's inventory. Required: a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024. b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
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