Question
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $663,000 cash. Immediately after the acquisition, the two companies have the following account
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $663,000 cash. Immediately after the acquisition, the two companies have the following account balances. Clays equipment (with a five-year remaining life) is actually worth $611,300. Credit balances are indicated by parentheses.
Adams | Clay | |||||
Current assets | $ | 408,000 | $ | 259,000 | ||
Investment in Clay | 663,000 | 0 | ||||
Equipment | 822,300 | 554,000 | ||||
Liabilities | (211,000 | ) | (225,000 | ) | ||
Common stock | (350,000 | ) | (150,000 | ) | ||
Retained earnings, 1/1/17 | (1,332,300 | ) | (438,000 | ) | ||
In 2017, Clay earns a net income of $50,700 and declares and pays a $5,000 cash dividend. In 2017, Adams reports net income from its own operations (exclusive of any income from Clay) of $189,000 and declares no dividends. At the end of 2018, selected account balances for the two companies are as follows:
Adams | Clay | |||||
Revenues | $ | (572,000 | ) | $ | (382,000 | ) |
Expenses | 414,700 | 286,500 | ||||
Investment income | Not given | 0 | ||||
Retained earnings, 1/1/18 | Not given | (483,700 | ) | |||
Dividends declared | 0 | 8,000 | ||||
Common stock | (350,000 | ) | (150,000 | ) | ||
Current assets | 712,000 | 305,200 | ||||
Investment in Clay | Not given | 0 | ||||
Equipment | 725,800 | 610,400 | ||||
Liabilities | (144,700 | ) | (192,000 | ) | ||
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What are the December 31, 2018, Investment Income and Investment in Clay account balances assuming Adams uses the:
- Equity method.
- Initial value method.
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How does the parents internal investment accounting method choice affect the amount reported for expenses in its December 31, 2018, consolidated income statement?
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How does the parents internal investment accounting method choice affect the amount reported for equipment in its December 31, 2018, consolidated balance sheet?
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What is Adamss January 1, 2018, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the:
- Equity value method.
- Initial value method.
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What worksheet adjustment to Adamss January 1, 2018, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method?
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Prepare the worksheet entry to eliminate Clays stockholders equity.
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What is consolidated net income for 2018?
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