Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 3, Problem 4DYS

a.

To determine

Compute consolidated balances for Company I and Company C.

a.

Expert Solution
Check Mark

Explanation of Solution

Consolidated balances for Company I and Company C:

Income statement Company I Company C Debit Credit Consolidated Balances
 Revenues $      (990,000) $     (210,000)   $      (1,200,000)
 Cost of goods sold $       500,000 $        90,000   $          590,000
 Depreciation expense $       100,000 $          5,000   $          105,000
 Amortization expense $         55,000 $        18,000 E 20,000  $            93,000
 Equity earnings from Company C $        (40,000)  I 40,000  $                      -
 Net income $      (375,000) $       (97,000)   $         (412,000)
      
 Balance Sheet     
 Current assets $       960,000 $      355,000   $       1,315,000
 Investment in Company C $       670,000 $                  - *C 60,000 S 580,000 
     A 150,000 $                      -
 Equipment $       765,000 $      225,000   $          990,000
 Trademark $       235,000 $      100,000 A 36,000 E 4,000 $          367,000
 Existing technology  $        45,000 A 64,000 E 16,000 $            93,000
 Goodwill $       450,000 $                  - A 50,000  $          500,000
 Total assets $    3,080,000 $      725,000   $       3,265,000
      
 Liabilities $      (780,000) $       (88,000)   $         (868,000)
 Common stock $      (500,000) $     (100,000) S 100,000  $         (500,000)
 Additional paid-in capital $      (120,000) $       (30,000) S 30,000  $         (120,000)
 Retained earnings $   (1,680,000) $     (507,000)   $      (1,777,000)
 Total liabilities and equity $   (3,080,000) $     (725,000) $       850,000 $       850,000 $      (3,265,000)

Table: (1)

Working note:

Statement of retained earningsCompany ICompany CDebitCreditConsolidated Balances
Retained earnings on 01/01 $   (1,555,000) $     (450,000) S 450,000 *C 60,000 $      (1,615,000)
Net Income $      (375,000) $       (97,000)   $         (412,000)
Dividends declared $       250,000 $        40,000  I 40,000 $          250,000
Retained earnings on 31/12 $   (1,680,000) $     (507,000)   $      (1,777,000)

Table: (2)

b.

To determine

Prepare a second spreadsheet that shows a 2018 impairment loss for the entire amount of goodwill from Company C acquisition.

b.

Expert Solution
Check Mark

Explanation of Solution

Spreadsheet that shows a 2018 impairment loss for the entire amount of goodwill from Company C acquisition:

Income statement Company I Company C Debit Credit Consolidated Balances
 Revenues $      (990,000) $     (210,000)   $      (1,200,000)
 Cost of goods sold $       500,000 $        90,000   $          590,000
 Depreciation expense $       100,000 $          5,000   $          105,000
 Amortization expense $         55,000 $        18,000 E 20,000  $            93,000
 Impairment loss $         50,000   50000
 Equity earnings from Company C $        (40,000)  I 40,000  $                      -
 Net income $      (325,000) $       (97,000)   $         (362,000)
      
 Balance Sheet     
 Current assets $       960,000 $      355,000   $       1,315,000
 Investment in Company C $       620,000 $                  - *C 60,000 S 580,000 
     A 100,000 $                      -
 Equipment $       765,000 $      225,000   $          990,000
 Trademark $       235,000 $      100,000 A 36,000 E 4,000 $          367,000
 Existing technology  $        45,000 A 64,000 E 16,000 $            93,000
 Goodwill $       450,000 $                  -   $          450,000
 Total assets $    3,030,000 $      725,000   $       3,215,000
      
 Liabilities $      (780,000) $       (88,000)   $         (868,000)
 Common stock $      (500,000) $     (100,000) S 100,000  $         (500,000)
 Additional paid-in capital $      (120,000) $       (30,000) S 30,000  $         (120,000)
 Retained earnings $   (1,630,000) $     (507,000)   $      (1,727,000)
 Total liabilities and equity $   (3,030,000) $     (725,000) $       850,000 $       850,000 $      (3,215,000)

Table: (3)

Statement of retained earningsCompany ICompany CDebitCreditConsolidated Balances
Retained earnings on 01/01 $   (1,555,000) $     (450,000) S 450,000 *C 60,000 $      (1,615,000)
Net Income $      (325,000) $       (97,000)   $         (362,000)
Dividends declared $       250,000 $        40,000  I 40,000 $          250,000
Retained earnings on 31/12 $   (1,630,000) $     (507,000)   $      (1,727,000)

Table: (4)

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