Following are separate financial statements of Michael Company and Aaron Company as of December 31,2013 (credit balances indicated by parentheses). Michael acquired all ofAaron’s out¬ standing voting stock on January 1,2009, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company’s stock actively traded at $23.50 per share.

Michael LO1 Aaron Company Company 12/31/13 12/31/13 Revenues... . .

.. $ (610,000)

$ (370,000)

Cost of goodssold.. .

270,000 140,000 Amortizations expense..

......... 115,000 80,000 Dividend income ......

. (5,000)

-0-

Net income....

. . .. $ (230,000)

$ (150,000)

Retained earnings, 1/1/13.. . . .

......... $ (880,000)

$ (490,000)

Net income (above)..

(230,000)

(150,000)

Dividends paid..

. 90,000 5,000 Retained earnings, 12/31/13.. . .

. $(1,020,000)

$ (635,000)

Cash......

. $ 110,000

$ 15,000 Receivables...

. 380,000 220,000 Inventory .....

......... 560,000 280,000 Investment in Aaron Company..

. ... 470,000

-0-

Copyrights.

. 460,000 340,000 Royalty agreements ...

. 920,000 380,000 Totalassets...

. . . .. $ 2,900,000

$ 1,235,000 Liabilities...

.. $ (780,000)

$. (470,000)

Preferred stock....

. (300,000)

-0-

Commonstock...

... (500,000)

(100,000)

Additional paid-in capital ..

. (300,000)

(30,000)

Retained earnings, 12/31/13..

. (1,020,000)

(635,000)

Total liabilities and equity ..,

. $(2,900,000)

$(1,235,000)

On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intan¬ gible was assumed to have a six-year life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books.

a. Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31,2013.

b. Assuming that Michael applied the equity method to this investment, what account balances would differ on the parent’s individual financial statements?

c. Assuming that Michael applied the equity method to this investment, what changes would be nec¬ essary iq the consolidation entries found on a December 31, 2013, worksheet?

d. Assuming that Michael applied the equity method to this investment, what changes would be cre¬ ated in the consolidated figures to be reported by this combination?