Adams, Incorporated, acquires Clay Corporation on January 1, 2023, in exchange for $550,400 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $537,600. Credit balances are indicated by parentheses. Items Adams Clay Current assets $ 480,000 $ 236,000 Investment in Clay 550,400 0 Equipment 713,600 462,000 Liabilities (261,000) (232,000) Common stock (350,000) (150,000) Retained earnings, 1/1/23 (1,133,000) (316,000) In 2023, Clay earns a net income of $50,400 and declares and pays a $5,000 cash dividend. In 2023, Adams reports net income from its own operations (exclusive of any income from Clay) of $201,000 and declares no dividends. At the end of 2024, selected account balances for the two companies are as follows: Items Adams Clay Revenues $ (508,000) $ (360,000) Expenses 368,300 270,000 Investment income Not given 0 Retained earnings, 1/1/24 Not given (361,400) Dividends declared 0 8,000 Common stock (350,000) (150,000) Current assets 784,000 304,100 Investment in Clay Not given 0 Equipment 602,100 515,100 Liabilities (196,800) (175,300) What is Adams’s January 1, 2024, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the: Equity value method. Initial value method. What worksheet adjustment to Adams’s January 1, 2024, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method? Prepare the worksheet entry to eliminate Clay’s stockholders’ equity. What is consolidated net income for 2024?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Adams, Incorporated, acquires Clay Corporation on January 1, 2023, in exchange for $550,400 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $537,600. Credit balances are indicated by parentheses.

Items	Adams	Clay
Current assets	$ 480,000	$ 236,000
Investment in Clay	550,400	0
Equipment	713,600	462,000
Liabilities	(261,000)	(232,000)
Common stock	(350,000)	(150,000)
Retained earnings, 1/1/23	(1,133,000)	(316,000)

In 2023, Clay earns a net income of $50,400 and declares and pays a $5,000 cash dividend. In 2023, Adams reports net income from its own operations (exclusive of any income from Clay) of $201,000 and declares no dividends. At the end of 2024, selected account balances for the two companies are as follows:

Items	Adams	Clay
Revenues	$ (508,000)	$ (360,000)
Expenses	368,300	270,000
Investment income	Not given	0
Retained earnings, 1/1/24	Not given	(361,400)
Dividends declared	0	8,000
Common stock	(350,000)	(150,000)
Current assets	784,000	304,100
Investment in Clay	Not given	0
Equipment	602,100	515,100
Liabilities	(196,800)	(175,300)

What is Adams’s January 1, 2024, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the:

Equity value method.
Initial value method.

What worksheet adjustment to Adams’s January 1, 2024, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method?

Prepare the worksheet entry to eliminate Clay’s stockholders’ equity.

What is consolidated net income for 2024?

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