On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing,Inc., for a total of $700,000 in cash and other consideration. At the acquisition date, Smashing hadcommon stock of $710,000, retained earnings of $260,000, and a noncontrolling interest fair value of$300,000. Corgan attributed the excess of fair value over Smashing's book value to various covenantswith 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:NetIncome2017 $2018DividendsDeclared160,000140,000InventoryPurchasesfromCorgan$ 36,00046,000$ 110,000130,000Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 30percent of the current year purchases remain in Smashing's inventory.1. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as ofDecember 31, 2018.2. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan andSmashing.

Determine Corgan's share of Smashing's earnings:2017 share of earnings = Net income * Ownership…

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 30 percent of the current year purchases remain in Smashing's inventory. 1. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018. 2. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 30 percent of the current year purchases remain in Smashing's inventory. 1. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018. 2. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.

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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