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Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2018. Several of Mergaronites accounts have been omitted. Credit balances are

  1. Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2018. Several of Mergaronites accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period.

    Mergaronite Hill
    Revenues $(600,000) $(250,000)
    Cost of goods sold 280,000 100,000
    Depreciation expense 120,000 50,000
    Investment income Not given NA
    Retained earnings, 1/1/18 (900,000) (600,000)
    Dividends declared 130,000 40,000
    Current assets 200,000 690,000
    Land 300,000 90,000
    Buildings (net) 500,000 140,000
    Equipment (net) 200,000 250,000
    Liabilities (400,000) (310,000)
    Common stock (300,000) (40,000)
    Additional paid-in capital (50,000) (160,000)

    page 144

    Assume that Mergaronite took over Hill on January 1, 2014, by issuing 7,000 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2014, Hills land was undervalued by $20,000, its buildings were overvalued by $30,000, and equipment was undervalued by $60,000. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $100,000 was developed internally by Hill and was to be written off over a 20-year period.

    1. Determine and explain the December 31, 2018, consolidated totals for the following accounts:

      Revenues Amortization Expense Customer List
      Cost of Goods Sold Buildings Common Stock
      Depreciation Expense Equipment Additional Paid-In Capital
    2. In requirement (a), why can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?

    3. If the parent uses the equity method, what consolidation entries would be used on a 2018 worksheet?

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