Foxx Greenburg $ (800,000) 100,000 300,000 $ (600,000) 150,000 Revenues.. Cost of goods sold Depreciation expense 350,000 Investment income (20,000) $ (420,000) -0- Net income... $ (100,000) Retained earnings, 1/1/18. Net income... Dividends declared.. Retained earnings, 12/31/18. $(1,100,000) (420,000) 120,000 $(1,400,000) $ (320,000) (100,000) 20,000 $ (400,000) Current assets..... Investment in subsidiary Equipment (net). Buildings (net) Land.... $ 300,000 $ 100,000 600,000 900,000 800,000 -0- 600,000 400,000 600,000 $3,200,000 100,000 Total assets $ 1,200,000 $ (900,000) (900,000) $ (500,000) (300,000) (400,000) $(1,200,000) Liabilities.... Common stock Retained earnings.. Total liabilities and equity . (1,400,000) $(3,200,000)
Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2016, for $600,000 cash. Greenburg’s accounting records showed net assets on that date of $470,000, although equipment with a 10-year remaining life was undervalued on the records by $90,000. Any recognized
Greenburg reports net income in 2016 of $90,000 and $100,000 in 2017. The subsidiary declared dividends of $20,000 in each of these two years.
Account balances for the year ending December 31, 2018, follow. Credit balances are indicated by parentheses.
a. Determine the December 31, 2018, consolidated balance for each of the following accounts:
Dividends Declared
Revenues
Equipment
Buildings
Goodwill
Common Stock
b. How does the parent’s choice of an accounting method for its investment affect the balances computed in requirement (a)?
c. Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?
d. If the parent company had used a different method of accounting for this investment, how could that method have been identified?
e. What would be Foxx’s balance for
• Initial value method.
• Partial equity method.
• Equity method.
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