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 )
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 )
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter16: Advanced Topics Concerning Complex Auditing Judgments
Section: Chapter Questions
Problem 55RSCQ
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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
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 | |||||
| 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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