As we discussed on the phone the other day, on December 31, Rosemeade Corporation finished its holiday shopping by buying 40 percent of the outstanding stock of Evers Inc. for $2 million in cash, and 80 percent of the outstanding stock of Chance Company for $14 million in cash. Before I discuss these transactions with the media, I would like you to determine the balances in some important line items that will be reported on Rosemeade's balance sheet for the year ended December 31, Year 1, after taking into account the purchases mentioned above. As you know, I changed my major to marketing after taking two accounting classes at State University, so I'm afraid the accounting for these business combination issues is a bit too complicated for me! The following line items are the items for which I would like to know the total amount that will be included on Rosemeade's December 31, Year 1, balance sheet that we will be issuing to our shareholders: Inventory Investment in s Goodwill Noncontrolling interest Retained earnings To assist you in this project, I've attached the December 31, Year 1, balance sheets for Rosemeade which were prepared right after the acquisitions. We recorded both acquisitions in an asset account that we call "Investment in S." In fact, the entire $16 million shown in Rosemeade's "Investment in S" account represents the total of the $2 million paid for the Evers stock and the $14 million paid for the Chance stock. I've also had the controllers for Evers Inc. and Chance Company send me their December 31, Year 1, balance sheets, which I've attached as well. Thank you for your help on this project, Connie. I will call you to discuss these numbers once I've read your letter in response to this request. Rosemeade Corporation Balance Sheet December 31, Year | A/C# Account 1001 Cash 1002 Receivables 1003 Inventory 1004 Investment in S 1005 Fixed assets (net) Total assets Assets Liabilities and Shareholders' Equity Carrying Fair Carrying Value Value A/C# Account Value $20,000,000 $20,000,000 2001 Accounts payable $ 7,000,000 2,000,000 2,000,000 2002 Long-term debt 18,000,000 6,000,000 8,000,000 3001 Common stock 20,000,000 16,000,000 16,000,000 3002 Retained earnings 10,000,000 11,000,000 26,000,000 $55,000,000 $72,000,000 Total liabilities and SE $55,000,000 Note: The fair value of the liabilities is assumed to be equal to their carrying value. Evers Inc. Balance Sheet December 31, Year! A/C# Account 21001 Cash 21002 Receivables 21003 Inventory 21004 Fixed assets (net) Total assets Assets Liabilities and Shareholders' Equity Carrying Fair Carrying Value Value A/C# Account Value $ 500,000 $ 500,000 22001 Accounts payable $ 400,000 1,500,000 1,500,000 22002 Long-term debt 1,600,000 1,000,000 1,200,000 22003 Common stock 2,000,000 2,000,000 2,800,000 22004 Retained earnings 1,000,000 $5,000,000 $6,000,000 Total liabilities and SE $5,000,000 Note: The fair value of the liabilities is assumed to be equal to their carrying value. Evers Inc. had net income of $350,000 in Year 1 and paid dividends of $50,000. Chance Company Balance Sheet December 31, Year 1 A/C# Account 110 Cash 120 Receivables 130 Inventory 140 Fixed assets (net) Total assets Assets Liabilities and Shareholders' Equity Carrying Fair Carrying Value Value A/C# Account Value $3,000,000 $3,000,000 210 Accounts payable $ 1,500,000 2,000,000 2,300,000 220 Long-term debt 2,500,000 4,000,000 4,600,000 230 Common stock 8,000,000 7,000,000 10,100,000 240 Retained earnings 4,000,000 $16,000,000 $20,000,000 Total liabilities and SE $16,000,000 Note: The fair value of the liabilities is assumed to be equal to their carrying value. Chance Company had net income of $700,000 in Year 1 and paid dividends of $200,000. Inventory: The amount reported for inventory should be $10,000,000 because Rosemeade will consolidate Chance and will report the investment in Evers using the equity method. Investment in S: The amount reported for investment in S should be $0 because the investment in S is eliminated upon consolidation. 9 Goodwill: The amount reported for goodwill should be $1,900,000, which is the sum of the goodwill from the acquisition of Chance and the goodwill from the investment in Evers. Noncontrolling interest: The amount reported for noncontrolling interest should be $2,800,000 to reflect the portion of Chance owned by other investors. The noncontrolling interest related to the investment in Evers is not separately recognized; it is part of the investment in Evers reported on the consolidated balance sheet. Retained earnings: The amount reported for retained earnings should be $10,560,000, which is the retained earnings of Rosemeade plus Rosemeade's share of the Year 1 earnings of Chance.