Kelsey Corporation acquired 100 percent of Snowdon Company’s outstanding common stock on January 1 for $550,000 in cash. Snowdon reported net assets with a carrying amount of $350,000 at that time. Some of Snowdon’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:

No impairment charges occurred during the year.

The following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. Snowdon declared and paid dividends in the same period. Credit balances are indicated by parentheses.

a. Show how Kelsey computed the $210,000 Income from Snowdon balance. Discuss how you determined which accounting method Kelsey uses for its investment in Snowdon.

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 Kelsey and Snowdon for the year ending December 31.

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Trademarks (indefinite life). Software (5-year remaining life). Equipment (10-year remaining life) Book Values $ 60,000 -0- 342,000 Fair Values $160,000 75,000 312,000