CASE $4$: $[25$ Marks$]$

On January $1,2019,$ Builders Company acquired Bright Company's outstanding common stock for $$846,000$ in cash. As of that date

the following information was acquired from Bright, the subsidiary of Builders:

Building $(12-$year life$)$ was undervalued on its balance sheet by $$76000$

Equipment $(10-$year life$)$ was undervalued by

Licensing agreement $(20-$year life$)$ unrecorded, assessed at

Book value as at January $1,2019$ was

Net income reported during $2019$ was

Dividends paid in $2019$

Earnings by Bright $($subsidiary$)$ in $2020$

Dividends distributed by Bright in $2020$

$$12,000$

$$40,000$

$$725,000$

$$100,000$

$$30,000$

$$120,000$

$$20,000$

As of December $31,2021$Builders and Bright reported the following for the year:

Required:

a$.$ If Builders applies the equity method, what is its investment account balance as of December $31,2021?$

b$.$ If Builders applies the initial value method, what is its investment account balance as of December $31,2021?$

c$.$ Regardless of the accounting method in use by Builders, what are the consolidated totals as of December $31,2021,$ for each of the

following accounts? $(4\mathrm{.}8$ marks$)$

Buildings Revenues

Equipment Net income

Land Investment in Bright

Depreciation expense Dividends paid

Amortization expense Cost of goods sold

d$.$ Prepare the worksheet entries required on December $31,2021,$ to consolidate the financial records of these two companies. Assume

that Builders applied the equity method to its investment account. $(8$ marks$)$

e$.$ Discuss how would the worksheet entries in requirement $($d$)$ change if Builders used the initial value method? Do not record the

entries. $(2$ marks$)$