Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share. Michael Company 12/31/21 Aaron Company 12/31/21 Revenues $ (610,000 ) $ (370,000 ) Cost of goods sold 270,000 140,000 Amortization expense 115,000 80,000 Dividend income (5,000 ) 0 Net income $ (230,000 ) $ (150,000 ) Retained earnings, 1/1/21 $ (880,000 ) $ (490,000 ) Net income (above) (230,000 ) (150,000 ) Dividends declared 90,000 5,000 Retained earnings, 12/31/21 $ (1,020,000 ) $ (635,000 ) Cash $ 110,000 $ 15,000 Receivables 380,000 220,000 Inventory 560,000 280,000 Investment in Aaron Company 470,000 0 Copyrights 460,000 340,000 Royalty agreements 920,000 380,000 Total assets $ 2,900,000 $ 1,235,000 Liabilities $ (780,000 ) $ (470,000 ) Preferred stock (300,000 ) 0 Common stock (500,000 ) (100,000 ) Additional paid-in capital (300,000 ) (30,000 ) Retained earnings, 12/31/21 (1,020,000 ) (635,000 ) Total liabilities and equity $ (2,900,000 ) $ (1,235,000 ) On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021. Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements?

Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share. Michael Company 12/31/21 Aaron Company 12/31/21 Revenues $ (610,000 ) $ (370,000 ) Cost of goods sold 270,000 140,000 Amortization expense 115,000 80,000 Dividend income (5,000 ) 0 Net income $ (230,000 ) $ (150,000 ) Retained earnings, 1/1/21 $ (880,000 ) $ (490,000 ) Net income (above) (230,000 ) (150,000 ) Dividends declared 90,000 5,000 Retained earnings, 12/31/21 $ (1,020,000 ) $ (635,000 ) Cash $ 110,000 $ 15,000 Receivables 380,000 220,000 Inventory 560,000 280,000 Investment in Aaron Company 470,000 0 Copyrights 460,000 340,000 Royalty agreements 920,000 380,000 Total assets $ 2,900,000 $ 1,235,000 Liabilities $ (780,000 ) $ (470,000 ) Preferred stock (300,000 ) 0 Common stock (500,000 ) (100,000 ) Additional paid-in capital (300,000 ) (30,000 ) Retained earnings, 12/31/21 (1,020,000 ) (635,000 ) Total liabilities and equity $ (2,900,000 ) $ (1,235,000 ) On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021. Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements?

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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	Michael Company 12/31/21		Aaron Company 12/31/21
Revenues	$	(610,000	)	$	(370,000	)
Cost of goods sold		270,000			140,000
Amortization expense		115,000			80,000
Dividend income		(5,000	)		0
Net income	$	(230,000	)	$	(150,000	)
Retained earnings, 1/1/21	$	(880,000	)	$	(490,000	)
Net income (above)		(230,000	)		(150,000	)
Dividends declared		90,000			5,000
Retained earnings, 12/31/21	$	(1,020,000	)	$	(635,000	)
Cash	$	110,000		$	15,000
Receivables		380,000			220,000
Inventory		560,000			280,000
Investment in Aaron Company		470,000			0
Copyrights		460,000			340,000
Royalty agreements		920,000			380,000
Total assets	$	2,900,000		$	1,235,000
Liabilities	$	(780,000	)	$	(470,000	)
Preferred stock		(300,000	)		0
Common stock		(500,000	)		(100,000	)
Additional paid-in capital		(300,000	)		(30,000	)
Retained earnings, 12/31/21		(1,020,000	)		(635,000	)
Total liabilities and equity	$	(2,900,000	)	$	(1,235,000	)

On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period.

Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021.
Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements?

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