p2 On January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $910,000 incash and other consideration. At the acquisition date, Smashing had common stock of $770,000, retained earnings of $320,000, and anoncontrolling interest fair value of $390,000. Corgan attributed the excess of fair value over Smashing's book value to variouscovenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.During the next two years, Smashing reported the following:InventoryPurchases fromDividendsDeclared$42,00052,000Corgan$170,000190,000Net Income$220,000200,00020202021Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 30 percent of the current yearpurchases remain in Smashing's inventory.a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.b. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.Complete this question by entering your answers in the tabs below.Required ARequired BCompute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.Investment balance 12/31/21

Answered: hing reported the following: Inventory…

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Accounting

hing reported the following: Inventory Purchases from Corgan $170,000 190,000

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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Liquidity Risk Exposure

Answer: c

Question

On January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $910,000 in
cash and other consideration. At the acquisition date, Smashing had common stock of $770,000, retained earnings of $320,000, and a
noncontrolling interest fair value of $390,000. Corgan attributed the excess of fair value over Smashing's book value to various
covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
Inventory
Purchases from
Dividends
Declared
$42,000
52,000
Corgan
$170,000
190,000
Net Income
$220,000
200,000
2020
2021
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 30 percent of the current year
purchases remain in Smashing's inventory.
a. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
b. Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
Investment balance 12/31/21

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