Assessment 1: Accounting for Equity Investments

Exercise 3 Worksheet: Consolidated Balances

On January 1, 2015, Pueblo Corporation purchased all of Spartan Companys outstanding stock for $1,200,000 cash. On that date, Spartans accounting records showed net assets of $940,000, even though equipment, with a life of 10 years, was undervalued on the books by $180,000. The life of recognized goodwill is considered to be indefinite. Spartan reported $180,000 net income in 2015 and $200,000 in 2016. The subsidiary paid dividends of $40,000 for each year. Financial figures are shown in Table 1 below for the year ending December 31, 2017. Credit balances are indicated in parentheses.

Table 1: Financial Figures for Year Ending December 31, 2017
Account	Pueblo	Spartan
Revenues	$ (1,600,000)	$ (1,200,000)
Cost of goods sold	$ 200,000	$ 300,000
Depreciation expense	$ 600,000	$ 700,000
Investment income	$ (40,000)	$ -
Net income	$ (840,000)	$ (200,000)
Dividends paid	$ 240,000	$ 40,000
Retained earnings, December 31, 2017	$ (2,800,000)	$ (800,000)
Current assets	$ 600,000	$ 200,000
Investment in subsidiary	$ 1,200,000	$ -
Equipment (net)	$ 1,800,000	$ 1,200,000
Buildings (net)	$ 1,600,000	$ 800,000
Land	$ 1,200,000	$ 200,000
Total assets	$ 6,400,000	$ 2,400,000
Liabilities	$ (1,800,000)	$ (1,000,000)
Common stock	$ (1,800,000)	$ (600,000)
Retained earnings	$ (2,800,000)	$ (800,000)
Total liabilities and equity	$ (6,400,000)	$ (2,400,000)

5. For each of the accounting methods listed below, determine Pueblos retained earnings balance as of January 1, 2017.
Method		Balance
Initial value method		$
Partial equity method		$
Equity method		$