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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A-5

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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