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On January 1, 2020, Portland Company acquired all of Salem Company's voting stock for $12,800,000 in cash. Some of Salem's assets and liabilities at the date of purchase had fair values that differed from reported values, as follows: Book Value Fair Value $8,800,000 $2,400,000 8,000,000 Buildings and equipment, net (20 years, straight-line) Identifiable intangibles (5 years, straight-line) 0 Salem's total shareholders' equity at January 1, 2020, was $3,200,000. It is now December 31, 2023 (four years later). Salem's retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of 2023 is $1,600,000. Goodwill impairment for 2023 is $400,000. Portland uses the complete equity method to account for its investment. The December 31, 2023, trial balance for Salem appears below. Dr (Cr) $2,000,000 22,400,000 Liabilities (8,000,000) Capital stock (1,600,000) Retained earnings, January 1 (12,800,000) Sales revenue (11,200,000) Cost of goods sold 6,400,000 Operating expenses 2,800,000 Current assets Plant assets, net SO Assume Portland uses the cost method to report its investment in Salem. On the December 31, 2023, consolidation working paper, adjusting entry (A) is necessary before continuing with eliminating entries (E), (R), and (O). Adjusting entry (A) increases beginning retained earnings by a. $3,840,000 b. $24,000,000 c. $5,760,000 d. $6,080,000

On January 1, 2020, Portland Company acquired all of Salem Company's voting stock for $12,800,000 in cash. Some of Salem's assets and liabilities at the date of purchase had fair values that differed from reported values, as follows: Book Value Fair Value $8,800,000 $2,400,000 8,000,000 Buildings and equipment, net (20 years, straight-line) Identifiable intangibles (5 years, straight-line) 0 Salem's total shareholders' equity at January 1, 2020, was $3,200,000. It is now December 31, 2023 (four years later). Salem's retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of 2023 is $1,600,000. Goodwill impairment for 2023 is $400,000. Portland uses the complete equity method to account for its investment. The December 31, 2023, trial balance for Salem appears below. Dr (Cr) $2,000,000 22,400,000 Liabilities (8,000,000) Capital stock (1,600,000) Retained earnings, January 1 (12,800,000) Sales revenue (11,200,000) Cost of goods sold 6,400,000 Operating expenses 2,800,000 Current assets Plant assets, net SO Assume Portland uses the cost method to report its investment in Salem. On the December 31, 2023, consolidation working paper, adjusting entry (A) is necessary before continuing with eliminating entries (E), (R), and (O). Adjusting entry (A) increases beginning retained earnings by a. $3,840,000 b. $24,000,000 c. $5,760,000 d. $6,080,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On January 1, 2020, Portland Company acquired all of Salem Company's voting stock for $12,800,000 in cash. Some of Salem's assets and liabilities at the date of purchase had fair values that differed from reported values, as follows: Book Value Fair Value $8,800,000 $2,400,000 8,000,000 Buildings and equipment, net (20 years, straight-line) Identifiable intangibles (5 years, straight-line) Current assets Plant assets, net Salem's total shareholders' equity at January 1, 2020, was $3,200,000. It is now December 31, 2023 (four years later). Salem's retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of 2023 is $1,600,000. Goodwill impairment for 2023 is $400,000. Portland uses the complete equity method to account for its investment. The December 31, 2023, trial balance for Salem appears below. Dr (Cr) $2,000,000 22,400,000 Liabilities (8,000,000) Capital stock (1,600,000) Retained earnings, January 1 (12,800,000) Sales revenue (11,200,000) Cost of goods sold 6,400,000 Operating expenses 2,800,000 0 $0 Assume Portland uses the cost method to report its investment in Salem. On the December 31, 2023, consolidation working paper, adjusting entry (A) is necessary before continuing with eliminating entries (E), (R), and (O). Adjusting entry (A) increases beginning retained earnings by a. $3,840,000 b. $24,000,000 c. $5,760,000 d. $6,080,000
Transcribed Image Text:On January 1, 2020, Portland Company acquired all of Salem Company's voting stock for $12,800,000 in cash. Some of Salem's assets and liabilities at the date of purchase had fair values that differed from reported values, as follows: Book Value Fair Value $8,800,000 $2,400,000 8,000,000 Buildings and equipment, net (20 years, straight-line) Identifiable intangibles (5 years, straight-line) Current assets Plant assets, net Salem's total shareholders' equity at January 1, 2020, was $3,200,000. It is now December 31, 2023 (four years later). Salem's retained earnings reflect the accumulation of net income less dividends; there have been no other changes in its retained earnings. Salem does not report any other comprehensive income. Cumulative goodwill impairment to the beginning of 2023 is $1,600,000. Goodwill impairment for 2023 is $400,000. Portland uses the complete equity method to account for its investment. The December 31, 2023, trial balance for Salem appears below. Dr (Cr) $2,000,000 22,400,000 Liabilities (8,000,000) Capital stock (1,600,000) Retained earnings, January 1 (12,800,000) Sales revenue (11,200,000) Cost of goods sold 6,400,000 Operating expenses 2,800,000 0 $0 Assume Portland uses the cost method to report its investment in Salem. On the December 31, 2023, consolidation working paper, adjusting entry (A) is necessary before continuing with eliminating entries (E), (R), and (O). Adjusting entry (A) increases beginning retained earnings by a. $3,840,000 b. $24,000,000 c. $5,760,000 d. $6,080,000
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