Which investment method did Patrick use to compute the $286,570 income from O'Brien? Determine the totals to be reported for this business combination for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.
Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1 for $700,400 in cash. O’Brien reported net assets with a carrying amount of $440,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:
| Book Values |
Fair Values |
|||
| Trademarks (indefinite life) | $ | 94,500 | $ | 238,500 |
| Customer relationships (5-year remaining life) | 0 | 75,000 | ||
| Equipment (10-year remaining life) | 352,000 | 310,300 | ||
Any
The following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses.
| Patrick | O'Brien | ||||||
| Revenues | $ | (1,725,000 | ) | $ | (676,000 | ) | |
| Cost of goods sold | 460,000 | 306,000 | |||||
| 104,400 | 72,600 | ||||||
| Amortization expense | 34,800 | 0 | |||||
| Income from O'Brien | (286,570 | ) | 0 | ||||
| Net income | $ | (1,412,370 | ) | $ | (297,400 | ) | |
| $ | (796,000 | ) | $ | (340,000 | ) | ||
| Net income | (1,412,370 | ) | (297,400 | ) | |||
| Dividends declared | 167,000 | 105,000 | |||||
| Retained earnings 12/31 | $ | (2,041,370 | ) | $ | (532,400 | ) | |
| Cash | $ | 203,000 | $ | 154,500 | |||
| Receivables | 294,000 | 74,700 | |||||
| Inventory | 181,000 | 205,000 | |||||
| Investment in O'Brien | 881,970 | 0 | |||||
| Trademarks | 516,000 | 69,900 | |||||
| Customer relationships | 0 | 0 | |||||
| Equipment (net) | 932,000 | 324,000 | |||||
| Goodwill | 0 | 0 | |||||
| Total assets | $ | 3,007,970 | $ | 828,100 | |||
| Liabilities | $ | (566,600 | ) | $ | (195,700 | ) | |
| Common stock | (400,000 | ) | (100,000 | ) | |||
| Retained earnings 12/31 | (2,041,370 | ) | (532,400 | ) | |||
| Total liabilities and equity | $ | (3,007,970 | ) | $ | (828,100 | ) | |
-
Which investment method did Patrick use to compute the $286,570 income from O'Brien?
-
Determine the totals to be reported for this business combination for the year ending December 31.
-
Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
