Question
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2016, for $776,000 cash. Greenburgs accounting records showed net assets on that date
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2016, for $776,000 cash. Greenburgs accounting records showed net assets on that date of $555,000, although equipment with a 10-year life was undervalued on the records by $171,000. Any recognized goodwill is considered to have an indefinite life.
Greenburg reports net income in 2016 of $95,500 and $132,500 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 | $ | (816,000 | ) | $ | (840,000 | ) | |
Cost of goods sold | 102,000 | 210,000 | |||||
Depreciation expense | 490,000 | 442,000 | |||||
Investment income | (20,000 | ) | 0 | ||||
Net income | $ | (244,000 | ) | $ | (188,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,178,000 | ) | $ | (443,000 | ) | |
Net income | (244,000 | ) | (188,000 | ) | |||
Dividends declared | 120,000 | 20,000 | |||||
Retained earnings, 12/31/18 | $ | (1,302,000 | ) | $ | (611,000 | ) | |
Current assets | $ | 398,000 | $ | 125,000 | |||
Investment in subsidiary | 776,000 | 0 | |||||
Equipment (net) | 1,024,000 | 730,000 | |||||
Buildings (net) | 912,000 | 428,000 | |||||
Land | 718,000 | 168,000 | |||||
Total assets | $ | 3,828,000 | $ | 1,451,000 | |||
Liabilities | $ | (1,626,000 | ) | $ | (540,000 | ) | |
Common stock | (900,000 | ) | (300,000 | ) | |||
Retained earnings | (1,302,000 | ) | (611,000 | ) | |||
Total liabilities and equity | $ | (3,828,000 | ) | $ | (1,451,000 | ) | |
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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 Foxxs 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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