Falr Book Values Values Trademarks (indefinite life) .... Customer relationships (5-year remaining life) Equipment (10-year remaining life) . $ 60,000 $160,000 75,000 -0- 342,000 312,000 Patrick O'Brien Revenues . Cost of goods sold Depreciation expense Amortization expense $ (1,125,000) 300,000 (520,000) 228,000 75,000 70,000 25,000 -0- Income from O'Brien (210,000) (935,000) -0- Net Income.... $ 222,000) Retained earnings 1/1 Net Income..... Dividends declared.. Retained earnings 12/31.. (700,000) (935,000) 142,000 (250,000) (222,000) 80,000 $ (1,493,000) (392,000) Cash 185,000 225,000 175,000 680,000 2$ 105,000 56,000 135,000 -0- 60,000 Receivables Inventory.. Investment in O'Brien. Trademarks . Customer relationships Equipment (net) . 474,000 -0- -0- 925,000 272,000 Goodwill .... -0- Total assets 2,664,000 628,000 Liabilities. (771,000) (400,000) (1,493,000) $ 2,664,000) (136,000) (100,000) (392,000) Common stock Retained earnings 12/31. Total liabilities and equity (628,000) %24
Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $550,000 in cash. O’Brien reported net assets with a carrying amount of $350,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:
Any
Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses.
a. Show how Patrick computed the $210,000 Income of O’Brien balance. Discuss how you determined which accounting method Patrick uses for its investment in O’Brien.
b. Without preparing a worksheet or consolidation entries, determine and explain the totals to be reported for this business combination for the year ending December 31.
c. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.
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