Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2018 (credit balances indicated by parentheses). Michael acquired all of Aaron's outstanding voting stock on January 1, 2014, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company's stock actively traded at $30.50 per share. Aaron Company 12/31/18 $ (390,000) 150,000 110,000 $ $ Michael Company 12/31/18 $ (640,000) 285,000 121,500 (5,000) $ (238,500) $ (922,000) (238,500) 90,000 $(1,070,500) 167,000 398,000 588,000 610,000 555,000 975,000 $ 3,293,000 $(1,122,500) (300,000) (500,000) (300,000) (1,070,500) $ (3,293,000) Revenues Cost of goods sold Amortization expense Dividend income Net income Retained earnings, 1/1/18 Net income (above) Dividends declared Retained earnings, 12/31/18 Cash Receivables Inventory Investment in Aaron Company Copyrights Royalty agreements Total assets Liabilities Preferred stock Common stock Additional paid-in capital Retained earnings, 12/31/18 Total liabilities and equity (130,000) (686,000) (130,000) 5,000 (811,000) 22,900 282,000 293,000 $ $ 397,000 412,000 $ 1,406,900 $ (465,900) (100,000) (30,000) (811,000) $(1,406,900) On the date of acquisition, Aaron reported retained earnings of $370,000 and a total book value of $500,000. 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, 2018. b. Assuming that Michael applied the equity method to this investment, what account balances would differ on the parent's individual financial statements? Required A Required B Using the preceding information, prepare a consolidation worksheet for these two companies as of December 31, 2018. (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. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) Show less Consolidated Totals MICHAEL COMPANY AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Michael Aaron Debit Credit (640,000) $ (390,000) 285,000 150,000 121,500 110,000 (5,000) 01 $ (238,500) $ (130,000) Accounts Revenues Cost of goods sold Amortization expense Dividend income Net income $ (922,000) Retained earnings, 1/1 (Michael) Retained earnings, 1/1 (Aaron) Net income (above) Dividends declared Retained earnings, 12/31 (238,500) 90,000 (1,070,500) $ (686,000) (130,000) 5,000 (811,000) $ $ $ 22,900 282,000 293,000 Cash Receivables Inventory Investment in Aaron Co. Copyrights Royalty agreements Trademark Total assets 167,000 398,000 588,000 610,000 555.000 975,000 0 3,293,000 397,000 412,000 07 1,406,900 $ $ $ $ (465,900) ELiabilities Preferred stock Common stock Additional paid-in capital Retained earnings, 12/31 (above) Total liabilities and equity (1,122,500) (300,000) (500,000) (300,000) (1,070,500) (3,293,000) | (100,000) (30,000)| (811,000) (1,406,900) $ $ 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 account balances would differ on the parent's individual financial statements?
