Required: a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024. b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
Required: a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024. b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A-2
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On January 1, 2023, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Incorporated, for a total of
$980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of
$250,000, and a noncontrolling interest fair value of $245,000. 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:
Items
2023
2024
Net Income
$ 150,000
130,000
Dividends
Declared
$ 35,000
45,000
Inventory Purchases
from Corgan
$ 100,000
120,000
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2023 and 2024, 40 percent of the current year
purchases remain in Smashing's inventory.
Required:
a. Compute the equity method balance in Corgan's Investment in Smashing, Incorporated, account as of December 31, 2024.
b. Prepare the worksheet adjustments for the December 31, 2024, consolidation of Corgan and Smashing.
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