Michael Aaron Company 12/31/18 Company 12/31/18 $ (610,000) $ (370,000) Revenues . Cost of goods sold . Amortization expense 270,000 140,000 80,000 115,000 Dividend income. -0- (5,000) $ (230,000) Net income.. $ (150,000) Retained earnings, 1/1/18. Net income (above) Dividends declared.. Retained earnings, 12/31/18. $ (880,000) (230,000) 90,000 $ (1,020,000) $ (490,000) (150,000) 5,000 $ (635,000) Cash ... Receivables . Inventory.. Investment in Aaron Company. Copyrights ... Royalty agreements. $ 110,000 380,000 560,000 470,000 460,000 920,000 $ 2,900,000 15,000 220,000 280,000 -0- 340,000 380,000 $ 1,235,000 Total assets $ 780,000) (300,000) (500,000) (300,000) (1,020,000) $ (2,900,000) $ (470,000) -0- (100,000) (30,000) (635,000) $(1,235,000) Liabilities.. Preferred stock Common stock Additional paid-in capital. Retained earnings, 12/31/18 Total liabilities and equity
Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2018 (credit balances indicated by parentheses). Michael acquired all of Aaron’s outstanding voting stock on January 1, 2014, 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.
On the date of acquisition, Aaron reported
a. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2018.
b. Instead of the initial value method, assume now that Michael applies the equity method to its Investment in Aaron account. What account balances would the parent’s individual financial statements then show for the Equity in Subsidiary Earnings, Retained Earnings, and Investment in Aaron accounts?
c. Assuming that Michael applied the equity method to this investment, how would the consolidation entries differ on a December 31, 2018, worksheet?
d. Assuming that Michael applied the equity method to this investment, how would the December 31, 2018, reported consolidated balances differ?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 8 images
