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Adams, Incorporated, acquires Clay Corporation on January 1, 2023, in exchange for $579,900 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 $481,200. Credit balances are indicated by parentheses. Items Current assets Investment in Clay Equipment Liabilities Common stock Retained earnings, 1/1/23 Adams $ 436,000 579,900 724,200 (253,000) (350,000) (1,137,100) Items Clay $ 252,000 Adams 426,000 (165,000) In 2023, Clay earns a net income of $75,600 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 $158,000 and declares no dividends. At the end of 2024, selected account balances for the two companies are as follows: (150,000) (363,000) Clay

Adams, Incorporated, acquires Clay Corporation on January 1, 2023, in exchange for $579,900 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 $481,200. Credit balances are indicated by parentheses. Items Current assets Investment in Clay Equipment Liabilities Common stock Retained earnings, 1/1/23 Adams $ 436,000 579,900 724,200 (253,000) (350,000) (1,137,100) Items Clay $ 252,000 Adams 426,000 (165,000) In 2023, Clay earns a net income of $75,600 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 $158,000 and declares no dividends. At the end of 2024, selected account balances for the two companies are as follows: (150,000) (363,000) Clay

FINANCIAL ACCOUNTING
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 $579,900 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 $481,200. Credit balances are indicated by parentheses. Items Current assets Investment in Clay Equipment Liabilities Common stock Retained earnings, 1/1/23 Items Revenues Expenses Investment income In 2023, Clay earns a net income of $75,600 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 $158,000 and declares no dividends. At the end of 2024, selected account balances for the two companies are as follows: Retained earnings, 1/1/24 Dividends declared Common stock Current assets Investment in Clay Equipment Liabilities Adams $ 436,000 579,900 724,200 0 426,000 (253,000) (165,000) (350,000) (1,137,100) Adams $ (406,000) 294,350 Clay $ 252,000 Not given Not given 0 • Equity value method. • Initial value method. (350,000) 759,000 Not given. 611,700 (202,900) (150,000) (363,000) Clay $ (402,000) 301,500 0 (433,600) 8,000 (150,000) 315,300 0 480,300 (126,300) Required: a. What are the December 31, 2024, Investment Income and Investment in Clay account balances assuming Adams uses the: . Equity method. • Initial value method. b. What is the amount of Consolidated Expenses in its December 31, 2024, consolidated income statement under each of the following methods? c. What is the amount of Consolidated Equipment in its December 31, 2024, consolidated balance sheet under each of the following methods? d. What is Adams's January 1, 2024, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the: e. 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? f. Prepare the worksheet entry to eliminate Clay's stockholders' equity. g. What is consolidated net income for 2024?
Transcribed Image Text:Adams, Incorporated, acquires Clay Corporation on January 1, 2023, in exchange for $579,900 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 $481,200. Credit balances are indicated by parentheses. Items Current assets Investment in Clay Equipment Liabilities Common stock Retained earnings, 1/1/23 Items Revenues Expenses Investment income In 2023, Clay earns a net income of $75,600 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 $158,000 and declares no dividends. At the end of 2024, selected account balances for the two companies are as follows: Retained earnings, 1/1/24 Dividends declared Common stock Current assets Investment in Clay Equipment Liabilities Adams $ 436,000 579,900 724,200 0 426,000 (253,000) (165,000) (350,000) (1,137,100) Adams $ (406,000) 294,350 Clay $ 252,000 Not given Not given 0 • Equity value method. • Initial value method. (350,000) 759,000 Not given. 611,700 (202,900) (150,000) (363,000) Clay $ (402,000) 301,500 0 (433,600) 8,000 (150,000) 315,300 0 480,300 (126,300) Required: a. What are the December 31, 2024, Investment Income and Investment in Clay account balances assuming Adams uses the: . Equity method. • Initial value method. b. What is the amount of Consolidated Expenses in its December 31, 2024, consolidated income statement under each of the following methods? c. What is the amount of Consolidated Equipment in its December 31, 2024, consolidated balance sheet under each of the following methods? d. What is Adams's January 1, 2024, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the: e. 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? f. Prepare the worksheet entry to eliminate Clay's stockholders' equity. g. What is consolidated net income for 2024?
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