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Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had
- Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
Big Guy Humble Humble (carrying value) (carrying value) (fair value) Cash $800,000 $245,000 $245,000 Accounts Receivable $240,000 $40,000 $40,000 Inventory $60,000 $45,000 $50,000 Equipment (net) $900,000 $80,000 $72,000 Trademark $90,000 $193,000 Total Assets $2,000,000 $500,000 Current Liabilities $200,000 $160,000 $160,000 Bonds Payable $260,000 $70,000 $40,000 Common Shares $900,000 $180,000 Retained Earnings $640,000 $90,000 Total Liabilities and Equity $2,000,000 $500,000 Big Guy Humble Sales $640,000 $240,000 Investment Revenue $8,480 Less: Expenses: Cost of Goods Sold $300,000 $160,000 Depreciation $81,000 $34,000 Interest Expense $34,000 $26,000 Other Expenses $5,000 $8,000 Net Income $228,480 $12,000 Big Guy Humble Balance, July 1, 2019 $960,560 $48,000 Net Income $228,480 $12,000 Dividends $20,000 $2,000 Balance, June 30, 2020 $1,169,040 $58,000 Big Guy Humble Cash $1,200,000 $365,000 Accounts Receivable $270,000 $55,000 Investment in Humble $319,040 Inventory $70,000 $70,000 Equipment (net) $820,000 $65,000 Trademark $85,000 Total Assets $2,679,040 $640,000 Current Liabilities $350,000 $332,000 Bonds Payable $260,000 $70,000 Common Shares $900,000 $180,000 Retained Earnings $1,169,040 $58,000 Total Liabilities and Equity $2,679,040 $640,000 $113,400.
$113,720.
$115,000.
$116,280.
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