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Project Scenario

Pecos Company acquired 100 percent of Suaros outstanding stock for $1,450,000 cash on January 1, 2012, when Suaro had the following balance sheet:

At the acquisition date, the fair values of each identifiable asset and liability that differed from book value were as follows:

Additional Information

Although at acquisition date Pecos expected future benefits from Suaros in-process research and development (R&D), by the end of 2012, it became clear that the research project was a failure with no future economic benefits.

During 2012, Suaro earns $75,000 and pays no dividends.

Selected amounts from Pecos and Suaros separate financial statements at December 31, 2013, are presented in the consolidated information worksheet. All consolidated worksheets are to be prepared as of December 31, 2013, two years subsequent to acquisition.

Pecoss January 1, 2013, Retained Earnings balancebefore any effect from Suaros 2012 incomeis $(930,000) (credit balance).

Pecos has 500,000 common shares outstanding for EPS calculations and reported $2,943,100 for consolidated assets at the beginning of the period.

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3. Using references to other cells only (either from the consolidated information worksheet or from the separate method sheets), prepare for each of the three consolidation worksheets:

Adjustments and eliminations.

Consolidated balances.

PECOS COMPANY AND SUARO COPANY Consolidated Worksheet For the Year Ended December 31, 2015 EQUITY METHOD Consolidation Entries Pecos (1,052,000) 821,000 Suaro (427,000) 262,000 Consolidated Totals (1,479,000) 1,083,000 50,000 Debit Credit Revenues Operating expenses Amortiz ation of intangibles Goodwill impairment loss Income of Suaro Net income 50,000 (115,000 346,000 115,000 165,000 346,00 Retai ned earnings-Pecos, 111 Retai ned earnings-Suaro, 11 Net income (above) Dividends declared Retai ned earnings, 12131 (655,000) (655,000) (201,000) (S) 201,000 (346,000) 200,000 (801,000) (165,000) 35,000 (331,000) (346,000) 35,000 200,000 (801,000 195,000 247,000 415,000 1,255,000 Receivables Inventory Investment in Suaro 95000 143,000 197,000 290,000 390,000 35,000 (E) 551,000 624,000 115,000 341,000 240,100 Land Equipment (net) Software Other intangibles Brand name Goodwill Total assets 85,000 100,000 (A) 10,000 416,000 340,100 50,000 (E 50,000 31 2,000 145,000 60,000 524,000 3,089,100 145,000 60,000 (A) 524,000 2,838,100 932,000 (1,537,100) (500, 000) (801,00 (2,838 100) (1,788,100) (500,000) (S) 350,000 Commn stock Retai ned earnings (above) Total liabilities and equity (350,000) (801,00 (932,00 1,385,000 1,385,000 (3,089,100) - Shaded items were provided on the Consolidated Information Worksheet PECOS COMPANY AND SUARO COPANY Consolidated Worksheet For the Year Ended December 31, 2015 EQUITY METHOD Consolidation Entries Pecos (1,052,000) 821,000 Suaro (427,000) 262,000 Consolidated Totals (1,479,000) 1,083,000 50,000 Debit Credit Revenues Operating expenses Amortiz ation of intangibles Goodwill impairment loss Income of Suaro Net income 50,000 (115,000 346,000 115,000 165,000 346,00 Retai ned earnings-Pecos, 111 Retai ned earnings-Suaro, 11 Net income (above) Dividends declared Retai ned earnings, 12131 (655,000) (655,000) (201,000) (S) 201,000 (346,000) 200,000 (801,000) (165,000) 35,000 (331,000) (346,000) 35,000 200,000 (801,000 195,000 247,000 415,000 1,255,000 Receivables Inventory Investment in Suaro 95000 143,000 197,000 290,000 390,000 35,000 (E) 551,000 624,000 115,000 341,000 240,100 Land Equipment (net) Software Other intangibles Brand name Goodwill Total assets 85,000 100,000 (A) 10,000 416,000 340,100 50,000 (E 50,000 31 2,000 145,000 60,000 524,000 3,089,100 145,000 60,000 (A) 524,000 2,838,100 932,000 (1,537,100) (500, 000) (801,00 (2,838 100) (1,788,100) (500,000) (S) 350,000 Commn stock Retai ned earnings (above) Total liabilities and equity (350,000) (801,00 (932,00 1,385,000 1,385,000 (3,089,100) - Shaded items were provided on the Consolidated Information Worksheet