The following are the financial statements of Michelangelo Corp and VanGogh Inc. prepared on December 31, 2020: 2020 INCOME SΤAΤΕΜΕNTS Michelangelo 926,500 VanGogh 270,000 3,600 Misc. revenues Interest revenue Dividend revenue 10,500 $937,000 736,400 3,600 80,000 $820,000 $117,000 $273,600 229,600 Misc. expenses Interest expense Income tax expense 20,000 249,600 $ 24,000 Net income 2020 RETAINED EARNINGS STATEMENTS $ 72,000 24,000 96,000 15,000 $ 81.000 Bal, Jan 1 Net income $153,000 117,000 289,800 50,000 $220.000 Dividends Bal. Dec 31 BALANCE SHEETS – December 31, 2020 $535,125 Misc. Assets $211,000 60,000 Note Receivables Investment in VanGogh 56,875 $592,000 $212,000 60,000 100,000 220,000 $592,000 $271,000 $140,000 Misc. Liabilities Note Payable Common Shares Retained Earnings 50,000 81,000 $271,000 Other information: Michelangelo acquired 70% of VanGogh on January 1, 2019 at a cost of $56,875. On this date VanGogh retained earnings amounted to $10,000, and the acquisition differential was entirely allocated to goodwill. Impairment tests conducted yearly since acquisition yielded a loss of $3,000 in 2019 and a further loss of $2,250 in 2020. Michelangelo uses the cost method to account for the investment. Use the entity theory for calculations. 1. The December 31, 2020 inventory of Michelangelo contained purchases made from VanGogh amounting to $10,000. VanGogh sells to Michelangelo at a 40% gross profit. 2. On July 1, 2020 Michelangelo borrowed $60,000 from VanGogh and signed a note bearing interest at 12% per year. 3. 4. Both companies pay income tax at a rate of 40%. REQUIRED: Calculate the balance in the "Investment in VanGogh" account as at December 31, 2020, if Michelangelo had used the equity method.
The following are the financial statements of Michelangelo Corp and VanGogh Inc. prepared on December 31, 2020: 2020 INCOME SΤAΤΕΜΕNTS Michelangelo 926,500 VanGogh 270,000 3,600 Misc. revenues Interest revenue Dividend revenue 10,500 $937,000 736,400 3,600 80,000 $820,000 $117,000 $273,600 229,600 Misc. expenses Interest expense Income tax expense 20,000 249,600 $ 24,000 Net income 2020 RETAINED EARNINGS STATEMENTS $ 72,000 24,000 96,000 15,000 $ 81.000 Bal, Jan 1 Net income $153,000 117,000 289,800 50,000 $220.000 Dividends Bal. Dec 31 BALANCE SHEETS – December 31, 2020 $535,125 Misc. Assets $211,000 60,000 Note Receivables Investment in VanGogh 56,875 $592,000 $212,000 60,000 100,000 220,000 $592,000 $271,000 $140,000 Misc. Liabilities Note Payable Common Shares Retained Earnings 50,000 81,000 $271,000 Other information: Michelangelo acquired 70% of VanGogh on January 1, 2019 at a cost of $56,875. On this date VanGogh retained earnings amounted to $10,000, and the acquisition differential was entirely allocated to goodwill. Impairment tests conducted yearly since acquisition yielded a loss of $3,000 in 2019 and a further loss of $2,250 in 2020. Michelangelo uses the cost method to account for the investment. Use the entity theory for calculations. 1. The December 31, 2020 inventory of Michelangelo contained purchases made from VanGogh amounting to $10,000. VanGogh sells to Michelangelo at a 40% gross profit. 2. On July 1, 2020 Michelangelo borrowed $60,000 from VanGogh and signed a note bearing interest at 12% per year. 3. 4. Both companies pay income tax at a rate of 40%. REQUIRED: Calculate the balance in the "Investment in VanGogh" account as at December 31, 2020, if Michelangelo had used the equity method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The following are the financial statements of Michelangelo Corp and VanGogh Inc. prepared on
December 31, 2020:
2020 INCOME STATEMENTS
Michelangelo
926,500
VanGogh
270,000
3,600
Misc. revenues
Interest revenue
Dividend revenue
10,500
$937,000
736,400
3,600
80,000
$820,000
$117,000
$273,600
229,600
Misc. expenses
Interest expense
Income tax expense
20,000
249,600
Net income
$ 24,000
2020 RETAINED EARNINGS STATEMENTS
$ 72,000
24,000
96,000
15,000
$ 81.000
Bal, Jan 1
$153,000
117,000
289,800
50,000
$220.000
Net income
Dividends
Bal. Dec 31
BALANCE SHEETS – December 31, 2020
Misc. Assets
$535,125
$211,000
60,000
Note Receivables
Investment in VanGogh
56,875
$592.000
$212,000
60,000
100,000
220,000
$592,000
-------
$271,000
$140,000
Misc. Liabilities
Note Payable
50,000
81.000
$271,000
Common Shares
Retained Earnings
Other information:
Michelangelo acquired 70% of VanGogh on January 1, 2019 at a cost of $56,875. On
this date VanGogh retained earnings amounted to $10,000, and the acquisition
differential was entirely allocated to goodwill. Impairment tests conducted yearly since
acquisition yielded a loss of $3,000 in 2019 and a further loss of $2,250 in 2020.
Michelangelo uses the cost method to account for the investment.
Use the entity theory for calculations.
1.
The December 31, 2020 inventory of Michelangelo contained purchases made from
VanGogh amounting to $10,000. VanGogh sells to Michelangelo at a 40% gross profit.
2.
On July 1, 2020 Michelangelo borrowed $60,000 from VanGogh and signed a note
bearing interest at 12% per year.
3.
4.
Both companies pay income tax at a rate of 40%.
REQUIRED:
Calculate the balance in the "Investment in VanGogh" account as at December 31, 2020, if
Michelangelo had used the equity method.
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