Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2013. Several of Mergaronite?s accounts have been omitted. Credit balances are indicated by parenthesis.
Given Data P03-26: Revenues Cost of goods sold Depreciation expense Investment income Retained earnings, 1/1/13 Dividends paid Current assets Land Buildings (net) Equipment (net) Liabilities Common stock Additional paid-in capital Mergaronite's $10 par common stock issued for acquisition of Hill - number of shares Fair market value of Mergaronite stock - per share Hill's land undervalued by Hill's buildings overvalued by Hill's equipment undervalued by Remaining life of buildings - years Remaining life of equipment - years Appraised value of Hill's customer list Remaining life of Hill's customer list - years Mergaronite 12/31/2013 $600,000 280,000 120,000 not given 900,000 130,000 200,000 300,000 500,000 200,000 400,000 300,000 50,000 Hill 12/31/2013 $250,000 100,000 50,000 NA 600,000 40,000 690,000 90,000 140,000 250,000 310,000 40,000 160,000 7,000 $100 20,000 30,000 60,000 10 5 $100,000 20 Student Name: Class: Problem 03-26 a. Fair Value Allocation and Annual Amortization Life (years) Allocation Annual Excess Amortizations Land Buildings Equipment Customer list Total Account Name Revenues Balance Explanation Cost of goods sold Depreciation expense Amortization expense Buildings (net) Equipment (net) Customer list Common stock Additional paid-in capital Part b. Why can consolidated totals be determined without knowing the consolidation method used? Part c. If the equity method is used by the parent, what consolidation entries would be used? MERGARONITE COMPANY General Journal Account Debit Credit Consolidation Entry S Common stock (Hill) Additional paid-in capital (Hill) Retained earnings, 1/1 Investment in Hill (To eliminate beginning stockholders' equity of subsidiary) Consolidation Entry A Land Equipment (net) Customer list (net) Buildings (net) Investment in Hill (To record unamortized allocation balances as of beginning of current year) Consolidation Entry I Investment income Investment in Hill (To remove equity income recognized during year-equity method accrual [based on subsidiary's income] less amortization for the year) Consolidation Entry D Investment in Hill Dividends paid (To remove intercompany dividend payments) Consolidation Entry E Amortization expense Depreciation expense Buildings Equipment Customer list (To recognize excess amortizations for period) Palm Company and Storm Company Fair Value allocation and Annual Amortization Storm fair value Book value of subsidiary Excess their value over book value $- Assigned to specific accounts based on fair market value: Land Buildings/Equipment Secret Formula Total Life (years) 2009 Annual Excess Amortization 2010 2011 2012 Palm Company and Consolidated Subsidiary Consolidation Worksheet For Year Ending December 31, 2013 Accounts Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity in subsidiary earnings Net income Statement of Retained Earnings Retained earnings, 1/1 Net income Dividends paid Retained earnings, 12/31 Balance Sheet Current assets Investment in Storm Co. Palm Company Storm Company Consolidation Entries Debit Credit Consolidated Totals - - - - - - - Secret formula Land Buildings & equipment (net) Total assets - - - Current liabilities Long-Term liabilities Common stock Additional paid-in capital Retained earnings, 12/31/13 Total liabilities & equity - - - Balance 1/1/2013 Don't forget to answer these two questions
