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The following are selected account balances from Parent Company and Sub Corporation as of December 31, 2021: Show work Parent Sub Revenues $ (700,000 ) $ (400,000 ) Cost of goods sold 250,000 100,000 Depreciation expense 150,000 200,000 Investment income Not given 0 Dividends declared 80,000 60,000 Retained earnings, 1/1/21 (600,000 ) (200,000 ) Current assets 400,000 500,000 Copyrights 900,000 400,000 Royalty agreements 600,000 1,000,000 Investment in Stanza Not given 0 Liabilities (500,000 ) (1,380,000 ) Common stock (600,000 ) ($20 par) (200,000 ) ($10 par) Additional paid-in capital (150,000 ) (80,000 ) Note: Parentheses indicate a credit balance
The following are selected account balances from Parent Company and Sub Corporation as of December 31, 2021: Show work
|
Parent |
Sub |
||||||||
|
Revenues |
$ |
(700,000 |
) |
$ |
(400,000 |
) |
|||
|
Cost of goods sold |
250,000 |
100,000 |
|||||||
|
Depreciation expense |
150,000 |
200,000 |
|||||||
|
Investment income |
Not given |
0 |
|||||||
|
Dividends declared |
80,000 |
60,000 |
|||||||
|
Retained earnings, 1/1/21 |
(600,000 |
) |
(200,000 |
) |
|||||
|
Current assets |
400,000 |
500,000 |
|||||||
|
Copyrights |
900,000 |
400,000 |
|||||||
|
Royalty agreements |
600,000 |
1,000,000 |
|||||||
|
Investment in Stanza |
Not given |
0 |
|||||||
|
Liabilities |
(500,000 |
) |
(1,380,000 |
) |
|||||
|
Common stock |
(600,000 |
) |
($20 par) |
(200,000 |
) |
($10 par) |
|||
|
Additional paid-in capital |
(150,000 |
) |
(80,000 |
) |
|||||
Note: Parentheses indicate a credit balance.
On January 1, 2021, Parent acquired all of Sub’s outstanding stock for $680,000 fair value in cash and common stock. Parent also paid $10,000 in stock issuance costs. At the date of acquisition, copyrights owned by the sub (with a six-year remaining life) have a $440,000 book value but a fair value of $560,000.
- As of December 31, 2021, what is the consolidated copyrights balance? (you need parent and sub, and the sub needs to be adjusted for date of acquisition value, and amortization)
- For the year ending December 31, 2021, what is consolidated net income? (you need parent and sub, and you need to adjust for amortization)
- As of December 31, 2021, what is the consolidated retained earnings balance?
- As of December 31, 2021, what is the consolidated balance to be reported for goodwill?
- As of December 31, 2021, what is the consolidated figure to be reported for dividends declared?
Expert Solution
A. Consolidated copyrights
Parent Company (book value) = 900000
Sub Corporation (book value) = 400000
Allocation = 560000 - 440000 = 120000
Excess amortization, 2021 = 120000/6 = 20000
Total consolidated copyrights = 900000 + 400000 +(120000-20000)
= $14,00,000
B. Consolidated net income
Parent Company Revenue = 700000
Sub Corporation Revenue = 400000
Total Revenue = 1100000
Expenses:-
|
Particulars |
Parent Company |
Sub Corporation |
|
Cost of goods sold |
250000 |
100000 |
|
Depreciation |
150000 |
200000 |
|
Total Expenses |
400000 |
300000 |
Total Expenses =400000+300000 = 700000
Excess amortization, 2021 = 120000/6 = 20000
Total Expenses = 700000+20000 = 720000
Consolidated Net Income = 1100000 – 720000
= 380000
C. Consolidated retained earnings, 2021
|
Particulars |
Amount |
|
Retained earnings (Parent Company ) |
600000 |
|
Net income |
380000 |
|
Dividends declared 9parent Company) |
(80000) |
|
Consolidated retained earnings, 2021 |
900000 |
D. Calculation of Goodwill
Sub Corporation acquisition fair value =680000
Book value of subsidiary (1/1/21 stockholders equity balance)
=200000+80000+200000 =480000
Fair value in excess of book value =680000 – 480000
=200000
Excess fair value allocated to copyrights based on fair value
=560000-440000=120000
Goodwill = 200000-120000
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