Patrick Corporation acquired 100% of O’Brien Company’s outstanding common stock on January 1, for $550,000 in cash. O’Brien reported net assets of $350,000 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:

Trademarks (indefinite life). LO1 Customer relationships (5-year life) Equipment (10-year life).

Book Fair Values Values

$60,000 $160,000

-0- 75,000 342,000 312,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year.

Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. Credit balances are indicated by parentheses.

Revenues.

Cost of goods sold . . . Depreciation expense . Amortization expense . Income from O'Brien .

Net Income .

Retained earnings 1/1 . Net Income.

Patrick O'Brien

$ (1,125,000)

$ (520,000)

300,000 228,000 75,000 70,000 25,000

-0-

(210,000)

-0-

$ (935,000)

$ (222,000)

(700,000)

(250,000)

(935,000)

(222,000)

Dividends paid.
Retained earnings 12/31 Cash.
Receivables.
Inventory.
Investment in O'Brien Trademarks.
Customer relationships . . .
Equipment (net).
Goodwill.
Total assets.
Liabilities.
Common stock.
Retained earnings 12/31 Total liabilities and equity Patrick 142,000 $ (1,493,000)
$ 185,000 225,000 175,000 680,000 474,000 -0- 925,000 _-0-
$ 2,664,000 (771,000)
(400,000)
(1,493,000)
$ (2,664,000)
O'Brien 80,000 $ (392,000)
$ 105,000 56,000 135,000 -0- 60,000 -0- 272,000 -0-
$ 628,000 (136,000)
(100,000)
(392,000)
$ (628,000)

a. Show how Patrick computed the $210,000 Income of O’Brien balance. Discuss how you deter¬ mined which accounting method Patrick uses for its investment in O’Brien.

b. Without preparing a worksheet or consolidation entries, determine and explain the totals to be reported for this business combination for the year ending December 31.

c. Verify the totals determined in part

(b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.