Chapter 3, Problem 32P

Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2018. 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. 1/1/18........................	(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 took over Hill on January 1, 2014, 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, 2014, 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 to be written off over a 20-year period.

a. Determine and explain the December 31, 2018, consolidated totals for the following accounts:

Revenues	Amortization Expense	Customer List
Cost of Goods Sold	Buildings	Common Stock
Depreciation Expense	Equipment	Additional Paid-In Capital

b. In requirement (a), why can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?

c. If the parent uses the equity method, what consolidation entries would be used on a 2018 worksheet?