Question
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2016, for $646,000 cash. Greenburgs accounting records showed net assets on that date
Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2016, for $646,000 cash. Greenburg’s accounting records showed net assets on that date of $497,000, although equipment with a 10-year life was undervalued on the records by $66,000. Any recognized goodwill is considered to have an indefinite life.
Greenburg reports net income in 2016 of $119,000 and $100,500 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 | $ | (868,000 | ) | $ | (652,000 | ) | |
Cost of goods sold | 108,500 | 163,000 | |||||
Depreciation expense | 370,000 | 406,000 | |||||
Investment income | (20,000 | ) | 0 | ||||
Net income | $ | (409,500 | ) | $ | (83,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,246,000 | ) | $ | (408,000 | ) | |
Net income | (409,500 | ) | (83,000 | ) | |||
Dividends declared | 120,000 | 20,000 | |||||
Retained earnings, 12/31/18 | $ | (1,535,500 | ) | $ | (471,000 | ) | |
Current assets | $ | 305,000 | $ | 118,000 | |||
Investment in subsidiary | 646,000 | 0 | |||||
Equipment (net) | 1,088,000 | 700,000 | |||||
Buildings (net) | 968,000 | 526,000 | |||||
Land | 674,000 | 122,000 | |||||
Total assets | $ | 3,681,000 | $ | 1,466,000 | |||
Liabilities | $ | (1,245,500 | ) | $ | (695,000 | ) | |
Common stock | (900,000 | ) | (300,000 | ) | |||
Retained earnings | (1,535,500 | ) | (471,000 | ) | |||
Total liabilities and equity | $ | (3,681,000 | ) | $ | (1,466,000 | ) | |
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Determine the December 31, 2018, consolidated balance for each of the following accounts:
Depreciation Expense | Buildings |
Dividends Declared | Goodwill |
Revenues | Common Stock |
Equipment | |
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How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)?
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Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?
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Determine parent's investment income for 2018 under partial equity method and equity method.
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What would be Foxx’s balance for retained earnings as of January 1, 2018, if each of the following methods had been in use?
- Initial value method.
- Partial equity method.
- Equity method.
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