On January 1, 2019, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $798,000. The fair value of the noncontrolling interest at the acquisition date was $342,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 200,000 Additional paid-in capital 100,000 Retained earnings 660,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $60,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years. During the subsequent years, Young sold Monica inventory at a 20 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following: Year Transfer Price Inventory Remaining at Year-End (at transfer price) 2019 $ 60,000 $ 35,000 2020 80,000 37,000 2021 90,000 43,000 In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2020, for $61,000. The equipment had originally cost Monica $100,000. Young plans to depreciate these assets over a 5-year period. In 2021, Young earns a net income of $230,000 and declares and pays $80,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $990,000 balance at the end of 2021.
On January 1, 2019, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $798,000. The fair value of the noncontrolling interest at the acquisition date was $342,000. Young reported
| Common stock—$10 par value | $ | 200,000 | |
| Additional paid-in capital | 100,000 | ||
| 660,000 | |||
In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $60,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 20 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:
| Year | Transfer Price | Inventory Remaining at Year-End (at transfer price) |
|||||
| 2019 | $ | 60,000 | $ | 35,000 | |||
| 2020 | 80,000 | 37,000 | |||||
| 2021 | 90,000 | 43,000 | |||||
In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2020, for $61,000. The equipment had originally cost Monica $100,000. Young plans to
In 2021, Young earns a net income of $230,000 and declares and pays $80,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $990,000 balance at the end of 2021.
Monica employs the equity method of accounting. Hence, it reports $155,560 investment income for 2021 with an Investment account balance of $935,980. Prepare the worksheet for ONLY entry I (debit investment income credit investment in Young) for the amount required for the consolidation of Monica Company and Young Company.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
