Question
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2019, for $655,000 cash. Greenburgs accounting records showed net assets on that date
Foxx Corporation acquired all of Greenburg Companys outstanding stock on January 1, 2019, for $655,000 cash. Greenburgs accounting records showed net assets on that date of $462,000, although equipment with a 10-year remaining life was undervalued on the records by $120,500. Any recognized goodwill is considered to have an indefinite life.
Greenburg reports net income in 2019 of $124,500 and $118,500 in 2020. The subsidiary declared dividends of $20,000 in each of these two years.
Account balances for the year ending December 31, 2021, follow. Credit balances are indicated by parentheses.
Foxx | Greenburg | ||||||
Revenues | $ | (1,032,000 | ) | $ | (684,000 | ) | |
Cost of goods sold | 129,000 | 171,000 | |||||
Depreciation expense | 352,000 | 445,000 | |||||
Investment income | (20,000 | ) | 0 | ||||
Net income | $ | (571,000 | ) | $ | (68,000 | ) | |
Retained earnings, 1/1/21 | $ | (1,240,000 | ) | $ | (365,000 | ) | |
Net income | (571,000 | ) | (68,000 | ) | |||
Dividends declared | 120,000 | 20,000 | |||||
Retained earnings, 12/31/21 | $ | (1,691,000 | ) | $ | (413,000 | ) | |
Current assets | $ | 333,000 | $ | 154,000 | |||
Investment in subsidiary | 655,000 | 0 | |||||
Equipment (net) | 1,080,000 | 760,000 | |||||
Buildings (net) | 886,000 | 454,000 | |||||
Land | 754,000 | 168,000 | |||||
Total assets | $ | 3,708,000 | $ | 1,536,000 | |||
Liabilities | $ | (1,117,000 | ) | $ | (823,000 | ) | |
Common stock | (900,000 | ) | (300,000 | ) | |||
Retained earnings | (1,691,000 | ) | (413,000 | ) | |||
Total liabilities and equity | $ | (3,708,000 | ) | $ | (1,536,000 | ) | |
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Determine the December 31, 2021, 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 2021 under partial equity method and equity method.
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What would be Foxxs balance for retained earnings as of January 1, 2021, if each of the following methods had been in use?
- Initial value method.
- Partial equity method.
- Equity method.
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