Question
Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $693,900 cash. Immediately after the acquisition, the two companies have the following account
Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $693,900 cash. Immediately after the acquisition, the two companies have the following account balances. Clays equipment (with a five-year remaining life) is actually worth $541,800. Credit balances are indicated by parentheses.
Adams | Clay | |||||
Current assets | $ | 344,000 | $ | 295,000 | ||
Investment in Clay | 693,900 | 0 | ||||
Equipment | 740,800 | 480,000 | ||||
Liabilities | (216,000 | ) | (163,000 | ) | ||
Common stock | (350,000 | ) | (150,000 | ) | ||
Retained earnings, 1/1/20 | (1,212,700 | ) | (462,000 | ) | ||
In 2020, Clay earns a net income of $76,800 and declares and pays a $5,000 cash dividend. In 2020, Adams reports net income from its own operations (exclusive of any income from Clay) of $182,000 and declares no dividends. At the end of 2021, selected account balances for the two companies are as follows:
Adams | Clay | |||||
Revenues | $ | (536,000 | ) | $ | (302,000 | ) |
Expenses | 388,600 | 226,500 | ||||
Investment income | Not given | 0 | ||||
Retained earnings, 1/1/21 | Not given | (533,800 | ) | |||
Dividends declared | 0 | 8,000 | ||||
Common stock | (350,000 | ) | (150,000 | ) | ||
Current assets | 696,000 | 359,500 | ||||
Investment in Clay | Not given | 0 | ||||
Equipment | 623,800 | 530,100 | ||||
Liabilities | (143,700 | ) | (124,600 | ) | ||
-
What are the December 31, 2021, Investment Income and Investment in Clay account balances assuming Adams uses the:
- Equity method.
- Initial value method.
-
What is the amount of Consolidated Expenses in its December 31, 2021, consolidated income statement under each of the following methods?
-
What is the amount of Consolidated Equipment in its December 31, 2021, consolidated balance sheet under each of the following methods?
-
What is Adamss January 1, 2021, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the:
- Equity value method.
- Initial value method.
-
What worksheet adjustment to Adamss January 1, 2021, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method?
-
Prepare the worksheet entry to eliminate Clays stockholders equity.
-
What is consolidated net income for 2021?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started