On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,440,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $870,000, retained earnings of $420,000, and a noncontrolling interest fair value of $360,000. 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: 2020 2021 Net Income $320,000 300,000 Dividends Declared $52,000 62,000 Inventory Purchases from Corgan $270,000 290,000 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 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. Required A Required B Complete this question by entering your answers in the tabs below. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021. Investment balance 12/31/21 < Required A Required B >
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,440,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $870,000, retained earnings of $420,000, and a noncontrolling interest fair value of $360,000. 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: 2020 2021 Net Income $320,000 300,000 Dividends Declared $52,000 62,000 Inventory Purchases from Corgan $270,000 290,000 Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 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. Required A Required B Complete this question by entering your answers in the tabs below. Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021. Investment balance 12/31/21 < Required A Required B >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,440,000
in cash and other consideration. At the acquisition date, Smashing had common stock of $870,000, retained earnings of $420,000,
and a noncontrolling interest fair value of $360,000. 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:
2020
2021
Net Income
$320,000
300,000
Dividends
Declared
$52,000
62,000
Inventory
Purchases from
Corgan
$270,000
290,000
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 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
< Required A
Required B >
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