Question
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $702,900 cash. Immediately after the acquisition, the two companies have the following account
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $702,900 cash. Immediately after the acquisition, the two companies have the following account balances. Clays equipment (with a five-year remaining life) is actually worth $626,500. Credit balances are indicated by parentheses.
Adams | Clay | |||||
Current assets | $ | 414,000 | $ | 253,000 | ||
Investment in Clay | 702,900 | 0 | ||||
Equipment | 810,500 | 562,000 | ||||
Liabilities | (298,000 | ) | (185,000 | ) | ||
Common stock | (350,000 | ) | (150,000 | ) | ||
Retained earnings, 1/1/17 | (1,279,400 | ) | (480,000 | ) | ||
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In 2017, Clay earns a net income of $56,100 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 $153,000 and declares no dividends. At the end of 2018, selected account balances for the two companies are as follows:
Adams | Clay | |||||
Revenues | $ | (580,000 | ) | $ | (336,000 | ) |
Expenses | 420,500 | 252,000 | ||||
Investment income | Not given | 0 | ||||
Retained earnings, 1/1/18 | Not given | (531,100 | ) | |||
Dividends declared | 0 | 8,000 | ||||
Common stock | (350,000 | ) | (150,000 | ) | ||
Current assets | 726,000 | 303,400 | ||||
Investment in Clay | Not given | 0 | ||||
Equipment | 693,000 | 594,400 | ||||
Liabilities | (233,500 | ) | (143,600 | ) | ||
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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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