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 $ (592,000 ) $ (248,000 ) Cost of goods sold 270,000 88,000 Depreciation expense 112,000 46,000 Investment income NA NA Retained earnings, 1/1/21 (906,000 ) (592,000 ) Dividends declared 124,000 38,000 Current assets 182,000 690,000 Land 294,000 94,000 Buildings (net) 500,000 156,000 Equipment (net) 190,000 244,000 Liabilities (394,000 ) (300,000 ) Common stock (316,000 ) (46,000 ) Additional paid-in capital (54,000 ) (870,000 ) Assume that Mergaronite acquired Hill on January 1, 2017, by issuing 7,400 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 $18,200, its buildings were overvalued by $29,800, and equipment was undervalued by $59,200. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $96,000 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 following accounts: 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?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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 | $ | (592,000 | ) | $ | (248,000 | ) | ||
| Cost of goods sold | 270,000 | 88,000 | ||||||
| 112,000 | 46,000 | |||||||
| Investment income | NA | NA | ||||||
| (906,000 | ) | (592,000 | ) | |||||
| Dividends declared | 124,000 | 38,000 | ||||||
| Current assets | 182,000 | 690,000 | ||||||
| Land | 294,000 | 94,000 | ||||||
| Buildings (net) | 500,000 | 156,000 | ||||||
| Equipment (net) | 190,000 | 244,000 | ||||||
| Liabilities | (394,000 | ) | (300,000 | ) | ||||
| Common stock | (316,000 | ) | (46,000 | ) | ||||
| Additional paid-in capital | (54,000 | ) | (870,000 | ) | ||||
Assume that Mergaronite acquired Hill on January 1, 2017, by issuing 7,400 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 $18,200, its buildings were overvalued by $29,800, and equipment was undervalued by $59,200. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $96,000 was developed internally by Hill and was estimated to have a 20-year remaining useful life.
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Determine the December 31, 2021, consolidated totals for the following accounts:
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In requirement (a), can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?
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If the parent uses the equity method, what consolidation entries would be used on a 2021 worksheet?
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