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.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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)

 

  1. What are the December 31, 2024, Investment Income and Investment in Clay account balances assuming Adams uses the:

  • Equity method.
  • Initial value method.

     2.  What is the amount of Consolidated Expenses in its December 31, 2024, consolidated income statement       under each of the following methods?

     3.  What is the amount of Consolidated Equipment in its December 31, 2024, consolidated balance sheet under each of the following methods?

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