Determining ending consolidated balances in the third year following the acquisition-Cost method Assume a parent company acquired a subsidiary on January 1, 2017, for $1,250,000. The purchase price was $900,000 in excess of the subsidiary's $350,000 book value of Stockholders' Equity on the acquisition date. Of this excess purchase price, $650,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $250,000 was assigned to Goodwill. On the acquisition date, the subsidiary reported retained earnings equal to $80,000. The parent uses Investment cost method of pre-consolidation Equity investment bookkeeping. The financial statement of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Investment income Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings $2,400,000 $1,050,000 Assets (1,300,000) (590,000) Cash 1,100,000 50,000 (600,000) $550,000 Balance sheet: $1,500,000 550,000 (250,000) $1,800,000 460,000 Accounts receivable Inventory (290,000) Equity investment $170,000 Property, plant and equipment (PPE), net $500,000 Liabilities and stockholders' equity 170,000 Accounts payable (50,000) Accrued liabilities $620,000 Long-term liabilities Common stock APIC Retained earnings Parent Subsidiary $850,000 $150,000 1,500,000 240,000 2,400,000 570,000 1,250,000 4,000,000 1,000,000 $10,000,000 $1,960,000 $1,000,000 $170,000 800,000 200,000 3,000,000 700,000 500,000 120,000 2,900,000 150,000 1,800,000 620,000 $10,000,000 $1,960,000
Determining ending consolidated balances in the third year following the acquisition-Cost method Assume a parent company acquired a subsidiary on January 1, 2017, for $1,250,000. The purchase price was $900,000 in excess of the subsidiary's $350,000 book value of Stockholders' Equity on the acquisition date. Of this excess purchase price, $650,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $250,000 was assigned to Goodwill. On the acquisition date, the subsidiary reported retained earnings equal to $80,000. The parent uses Investment cost method of pre-consolidation Equity investment bookkeeping. The financial statement of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Investment income Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends Ending retained earnings $2,400,000 $1,050,000 Assets (1,300,000) (590,000) Cash 1,100,000 50,000 (600,000) $550,000 Balance sheet: $1,500,000 550,000 (250,000) $1,800,000 460,000 Accounts receivable Inventory (290,000) Equity investment $170,000 Property, plant and equipment (PPE), net $500,000 Liabilities and stockholders' equity 170,000 Accounts payable (50,000) Accrued liabilities $620,000 Long-term liabilities Common stock APIC Retained earnings Parent Subsidiary $850,000 $150,000 1,500,000 240,000 2,400,000 570,000 1,250,000 4,000,000 1,000,000 $10,000,000 $1,960,000 $1,000,000 $170,000 800,000 200,000 3,000,000 700,000 500,000 120,000 2,900,000 150,000 1,800,000 620,000 $10,000,000 $1,960,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Determining ending consolidated balances in the third year following the acquisition-Cost method
Assume a parent company acquired a subsidiary on January 1, 2017, for $1,250,000. The purchase price was $900,000 in excess of the subsidiary's $350,000 book value of Stockholders' Equity on the
acquisition date. Of this excess purchase price, $650,000 was assigned to Property, plant and equipment with a remaining economic useful life of 10 years, and $250,000 was assigned to Goodwill. On
the acquisition date, the subsidiary reported retained earnings equal to $80,000. The parent uses Investment cost method of pre-consolidation Equity investment bookkeeping. The financial statements
of the parent and its subsidiary for the year ended December 31, 2019, are as follows:
Parent Subsidiary
Income statement:
Sales
Cost of goods sold
Gross profit
Investment income
Operating expenses
Net income
Statement of retained earnings:
BOY retained earnings
Net income
Dividends
Ending retained earnings
Balance sheet:
$2,400,000 $1,050,000 Assets
(1,300,000) (590,000) Cash
1,100,000
50,000
(600,000)
$550,000
460,000 Accounts receivable
Inventory
(290,000) Equity investment
$170,000 Property, plant and equipment (PPE), net
$1,500,000
550,000
(250,000)
$1,800,000 $620,000 Long-term liabilities
Common stock
APIC
Retained earnings
$500,000 Liabilities and stockholders' equity
170,000 Accounts payable
(50,000) Accrued liabilities
Parent
Subsidiary
$850,000
$150,000
1,500,000 240,000
2,400,000 570,000
1,250,000
4,000,000 1,000,000
$10,000,000 $1,960,000
$1,000,000
$170,000
800,000 200,000
3,000,000
700,000
500,000
120,000
2,900,000 150,000
1,800,000 620,000
$10,000,000 $1,960,000
←
Transcribed Image Text:At what amount will the following accounts appear in the consolidated financial statements for the year ended December 31, 2019?
Note: Do not use negative signs with any answers.
Account
a. Sales
$
b. Investment Income $
c. Operating expenses $
d. Inventories
$
$
$
$
e. Equity investment
f. PPE, net
g. Goodwill
h. Common Stock
$
i. Retained Earnings $
Amount
3,450,000 ✓
0 ✓
X
2,970,000 ✓
0
X
250,000 ✓
500,000 ✓
X
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