Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021 (credit balances Indicated by parentheses). Michael acquired all of Aaron's outstanding voting stock on January 1, 2017, by Issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company's stock actively traded at $23.50 per share. Revenues Cost of goods sold Amortization expense Dividend income Net income Retained earnings, 1/1/21 Net income (above) Dividends declared Retained earnings, 12/31/21 Cash Receivables Inventory Investment in Aaron Company Copyrights Royalty agreements Total assets Liabilities Preferred stock Common stock Additional paid-in capital Retained earnings, 12/31/21 Total liabilities and equity Michael Company 12/31/21 $ (610, 000) 270,000 115,000 (5,000) $ (230,000) $ (880,000 (230, 000) 90,000 $ (1,020,000) $ 110,000 380,000 560,000 470.000 460,000 920,000 $ 2,900,000 $ (780, 000) (300, 000) (500, 000) (300, 000) (1.020, 000) $ (2, 900, 000) Aaron Company 12/31/21 $ (370,000 140,000 80,000 0 $ (150,000 $ (490, 000) (150,000) 5.000 $ (635,000) $ 15,000 220.000 280,000 0 340,000 380,000 $ 1,235,000 $ (470.000) 0 (100, 000) (30,000) (635.000 $ (1, 235, 000) On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, Its royalty agreements were undervalued by $60,000. This Intangible was assumed to have a six-year remaining life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Aaron declared and paid dividends in the same period. a. Using the preceding Information, prepare a consolidation worksheet for these two companies as of December 31, 2021. b. Assuming that Michael applied the equity method to this Investment, what would the following account balances be on the parent's Individual financial statements? Complete this question by entering your answers in the tabs below. Required A Required B Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2021. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.) Show less Consolidation Worksheet For Year Ending December 31, 2021 Consolidation Entries Debit Credit Consolidated Totals Accounts Michael $ S Revenues Cost of goods sold Amortization expense (610,000) 270.000 115.000 Aaron (370.000) 140.000 80,000 Dividend income 0 (5.000) (230,000) Net income $ S (150.000) (880,000) 0 0 (490.000) Retained earning, 1/1/21 (Michael) Retained earning. 1/1/21 (Aaron) Net income (above) Dividends declared (230,000) 90.000 (1.020,000) (150.000) 5,000 (635,000) Retained earnings. 12/31/21 $ S $ 110,000 $ 15,000 Cash Receivables 380,000 220.000 280.000 Inventory 560,000 Investment in Aaron Co. 0 470,000 460,000 Copyrights Royalty agreements Trademark 340,000 380.000 920,000 0 0 Total assets $ 2,900,000 $ 1,235,000 Liabilities $ $ (470.000) 0 Preferred stock Common stock Additional paid-in capital Retained earnings, 12/31/21 (above) Total liabilities and equity (780,000) (300,000) (500,000) (300.000) (1.020,000) (2.900,000) (100.000) (30,000) (635.000) (1.235,000) $ $ S 0 S Required A Required B > Complete this question by entering your answers in the tabs below. Required a Required B Assuming that Michael applied the equity method to this investment, what would the following account balances be on the parent's individual financial statements? Amounts Equity in Earnings of Aaron 12/31/21 Retained earnings. 1/1/21 Investment in Aaron 12/31/21 Retained earnings. 12/31/21
