Question
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2016, for $693,000 cash. Greenburgs accounting records showed net assets on that date
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2016, for $693,000 cash. Greenburgs accounting records showed net assets on that date of $558,000, although equipment with a 10-year life was undervalued on the records by $71,500. Any recognized goodwill is considered to have an indefinite life.
Greenburg reports net income in 2016 of $97,000 and $135,500 in 2017. The subsidiary declared dividends of $20,000 in each of these two years.
Account balances for the year ending December 31, 2018, follow. Credit balances are indicated by parentheses.
| Foxx | Greenburg | ||||||||||||||||||||||||||||||||||
| Revenues | $ | (860,000 | ) | $ | (776,000 | ) | |||||||||||||||||||||||||||||
| Cost of goods sold | 107,500 | 194,000 | |||||||||||||||||||||||||||||||||
| Depreciation expense | 348,000 | 375,000 | |||||||||||||||||||||||||||||||||
| Investment income | (20,000 | ) | 0 | ||||||||||||||||||||||||||||||||
| Net income | $ | (424,500 | ) | $ | (207,000 | ) | |||||||||||||||||||||||||||||
| Retained earnings, 1/1/18 | $ | (1,218,000 | ) | $ | (335,000 | ) | |||||||||||||||||||||||||||||
| Net income | (424,500 | ) | (207,000 | ) | |||||||||||||||||||||||||||||||
| Dividends declared | 120,000 | 20,000 | |||||||||||||||||||||||||||||||||
| Retained earnings, 12/31/18 | $ | (1,522,500 | ) | $ | (522,000 | ) | |||||||||||||||||||||||||||||
| Current assets | $ | 325,000 | $ | 161,000 | |||||||||||||||||||||||||||||||
| Investment in subsidiary | 693,000 | 0 | |||||||||||||||||||||||||||||||||
| Equipment (net) | 1,054,000 | 634,000 | |||||||||||||||||||||||||||||||||
| Buildings (net) | 826,000 | 588,000 | |||||||||||||||||||||||||||||||||
| Land | 666,000 | 145,000 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 3,564,000 | $ | 1,528,000 | |||||||||||||||||||||||||||||||
| Liabilities | $ | (1,141,500 | ) | $ | (706,000 | ) | |||||||||||||||||||||||||||||
| Common stock | (900,000 | ) | (300,000 | ) | |||||||||||||||||||||||||||||||
| Retained earnings | (1,522,500 | ) | (522,000 | ) | |||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | (3,564,000 | ) | $ | (1,528,000 | ) | |||||||||||||||||||||||||||||
| a.
b. How does the parents choice of an accounting method for its investment affect the balances computed in requirement (a)? a. yes affects consolidate totals b. no, doesn't affect consolidated totals but only internal reporting of parent c. no, neither affects consolidated totals nor intenal reportin of parent c. Which method of accounting for this subsidiary is the parent actually using for intenal reporting purpses? a. initial value method b. partial equity method c. equity method D&E
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Fundamentals Of Managerial Accounting Version 3.0
Authors: Kurt Heisinger, Joe Ben Hoyle
1st Edition
1453399410, 9781453399415
