The following are selected accounts and balances for Mergaronite Company and Hill, Inc., as of December 31, 2021. Several of Mergaronite’s accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period. Mergaronite Hill Revenues $ (600,000 ) $ (250,000 ) Cost of goods sold 280,000 100,000 Depreciation expense 120,000 50,000 Investment income Not given NA Retained earnings, 1/1/21 (900,000 ) (600,000 ) Dividends declared 130,000 40,000 Current assets 200,000 690,000 Land 300,000 90,000 Buildings (net) 500,000 140,000 Equipment (net) 200,000 250,000 Liabilities (400,000 ) (310,000 ) Common stock (300,000 ) (40,000 ) Additional paid-in capital (50,000 ) (160,000 ) Assume that Mergaronite acquired Hill on January 1, 2017, by issuing 7,000 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2017, Hill’s land was undervalued by $20,000, its buildings were overvalued by $30,000, and equipment was undervalued by $60,000. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $100,000 was developed internally by Hill and was estimated to have a 20-year remaining useful life. Determine the December 31, 2021, consolidated totals for the accounts given. In requirement (a), can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary? If the parent uses the equity method, what consolidation entries would be used on a 2021 worksheet?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following are selected accounts and balances for Mergaronite Company and Hill, Inc., as of December 31, 2021. Several of Mergaronite’s accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period.

	Mergaronite		Hill
Revenues	$	(600,000	)	$	(250,000	)
Cost of goods sold		280,000			100,000
Depreciation expense		120,000			50,000
Investment income		Not given		NA
Retained earnings, 1/1/21		(900,000	)		(600,000	)
Dividends declared		130,000			40,000
Current assets		200,000			690,000
Land		300,000			90,000
Buildings (net)		500,000			140,000
Equipment (net)		200,000			250,000
Liabilities		(400,000	)		(310,000	)
Common stock		(300,000	)		(40,000	)
Additional paid-in capital		(50,000	)		(160,000	)

Assume that Mergaronite acquired Hill on January 1, 2017, by issuing 7,000 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2017, Hill’s land was undervalued by $20,000, its buildings were overvalued by $30,000, and equipment was undervalued by $60,000. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $100,000 was developed internally by Hill and was estimated to have a 20-year remaining useful life.

Determine the December 31, 2021, consolidated totals for the accounts given.
In requirement (a), can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?
If the parent uses the equity method, what consolidation entries would be used on a 2021 worksheet?

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