Giant acquired all of Small’s common stock on January 1, 2017, in exchange for cash of $770,000. On that day, Small reported common stock of $170,000 and retained earnings of $400,000. At the acquisition date, $32,500 of the fair-value price was attributed to undervalued land while $95,500 was assigned to undervalued equipment having a 10-year remaining life. The $72,000 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill. Over the next few years, Giant applied the equity method to the recording of this investment. The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $11,900. Small declared and paid dividends in the same period. Credits are indicated by parentheses. Giant Small Revenues $ (1,183,550 ) $ (462,500 ) Cost of goods sold 583,000 98,500 Depreciation expense 187,000 148,000 Equity in income of Small (206,450 ) 0 Net income $ (620,000 ) $ (216,000 ) Retained earnings, 1/1/21 $ (1,720,000 ) $ (642,000 ) Net income (above) (620,000 ) (216,000 ) Dividends declared 310,000 120,000 Retained earnings, 12/31/21 $ (2,030,000 ) $ (738,000 ) Current assets $ 439,750 $ 334,000 Investment in Small 1,060,250 0 Land 526,000 260,000 Buildings (net) 390,000 432,000 Equipment (net) 739,000 294,000 Goodwill 0 0 Total assets $ 3,155,000 $ 1,320,000 Liabilities $ (875,000 ) $ (412,000 ) Common stock (250,000 ) (170,000 ) Retained earnings(above) (2,030,000 ) (738,000 ) Total liabilities and equities $ (3,155,000 ) $ (1,320,000 )

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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Giant acquired all of Small’s common stock on January 1, 2017, in exchange for cash of $770,000. On that day, Small reported common stock of $170,000 and retained earnings of $400,000. At the acquisition date, $32,500 of the fair-value price was attributed to undervalued land while $95,500 was assigned to undervalued equipment having a 10-year remaining life. The $72,000 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill. Over the next few years, Giant applied the equity method to the recording of this investment.

The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $11,900. Small declared and paid dividends in the same period. Credits are indicated by parentheses.

	Giant		Small
Revenues	$	(1,183,550	)	$	(462,500	)
Cost of goods sold		583,000			98,500
Depreciation expense		187,000			148,000
Equity in income of Small		(206,450	)		0
Net income	$	(620,000	)	$	(216,000	)
Retained earnings, 1/1/21	$	(1,720,000	)	$	(642,000	)
Net income (above)		(620,000	)		(216,000	)
Dividends declared		310,000			120,000
Retained earnings, 12/31/21	$	(2,030,000	)	$	(738,000	)
Current assets	$	439,750		$	334,000
Investment in Small		1,060,250			0
Land		526,000			260,000
Buildings (net)		390,000			432,000
Equipment (net)		739,000			294,000
Goodwill		0			0
Total assets	$	3,155,000		$	1,320,000
Liabilities	$	(875,000	)	$	(412,000	)
Common stock		(250,000	)		(170,000	)
Retained earnings(above)		(2,030,000	)		(738,000	)
Total liabilities and equities	$	(3,155,000	)	$	(1,320,000	)

Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2021.

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