On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,155,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $840,000, retained earnings of $390,000, and a noncontrolling interest fair value of $495,000. 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: Net Income Dividends Declared Inventory Purchases from Corgan 2017 $ 290,000 $ 49,000 $ 240,000 2018 270,000 59,000 260,000 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 40 percent of the current year purchases remain in Smashing's inventory. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018. Investment balance 12/31/18 Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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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On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,155,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $840,000, retained earnings of $390,000, and a noncontrolling interest fair value of $495,000. 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:

	Net Income	Dividends Declared	Inventory Purchases from Corgan
2017	$	290,000		$	49,000	$	240,000
2018		270,000			59,000		260,000

Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 40 percent of the current year purchases remain in Smashing's inventory.

Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.
Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.

Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.

Investment balance 12/31/18

Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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