On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,000,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $760,000, retained earnings of $310,000, and a noncontrolling interest fair value of $250,000. 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:

On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,000,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $760,000, retained earnings of $310,000, and a noncontrolling interest fair value of $250,000. 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:

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

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Question

On January 1, 2017, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of
$1,000,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $760,000, retained
earnings of $310,000, and a noncontrolling interest fair value of $250,000. 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
2017 $
2018
Dividends
Declared from
210,000
Inventory
Purchases
190,000
Corgan
$ 41,000
51,000
$ 160,000
180,000
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2017 and 2018, 50 percent of the
current year purchases remain in Smashing's inventory.
1. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2018.
2. Prepare the worksheet adjustments for the December 31, 2018, consolidation of Corgan and Smashing.

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