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Hi, I need a little help with the following. Thank you in advance! On January 1, 2015, Pueblo Corporation purchased all of Spartan Companys outstanding
Hi, I need a little help with the following. Thank you in advance!
On January 1, 2015, Pueblo Corporation purchased all of Spartan Companys outstanding stock for $1,200,000 cash. On that date, Spartans accounting records showed net assets of $940,000, even though equipment, with a life of 10 years, was undervalued on the books by $180,000. The life of recognized goodwill is considered to be indefinite. Spartan reported $180,000 net income in 2015 and $200,000 in 2016. The subsidiary paid dividends of $40,000 for each year. Financial figures are shown in Table 1 below for the year ending December 31, 2017. Credit balances are indicated in parentheses. | ||
Table 1: Financial Figures for Year Ending December 31, 2017 | ||
Account | Pueblo | Spartan |
Revenues | $(1,600,000) | $(1,200,000) |
Cost of goods sold | $200,000 | $300,000 |
Depreciation expense | $600,000 | $700,000 |
Investment income | $(40,000) | $- |
Net income | $(840,000) | $(200,000) |
Dividends paid | $240,000 | $40,000 |
Retained earnings, December 31, 2017 | $(2,800,000) | $(800,000) |
Current assets | $600,000 | $200,000 |
Investment in subsidiary | $1,200,000 | $- |
Equipment (net) | $1,800,000 | $1,200,000 |
Buildings (net) | $1,600,000 | $800,000 |
Land | $1,200,000 | $200,000 |
Total assets | $6,400,000 | $2,400,000 |
Liabilities | $(1,800,000) | $(1,000,000) |
Common stock | $(1,800,000) | $(600,000) |
Retained earnings | $(2,800,000) | $(800,000) |
Total liabilities and equity | $(6,400,000) | $(2,400,000) |
Answer Questions 15 below. | ||
1. Determine consolidated balances, as of December 31, 2017, of the accounts listed below. | ||
Account | Balance | |
Depreciation expense | ||
Dividends paid | ||
Revenues | ||
Equipment | ||
Buildings | ||
Goodwill | ||
Common stock | ||
2. How does the accounting method chosen by the parent company for its investment affect the consolidated balances computed for the accounts listed in question 1? | ||
(Use this cell for your answer to question 2.) | ||
3. Which accounting method for Spartan is Pueblo using for internal reporting? | ||
(Use this cell for your answer to question 3.) | ||
4. If Pueblo had used a different accounting method for this particular investment, how could you identify the method used? | ||
(Use this cell for your answer to question 4.) | ||
5. For each of the accounting methods listed below, determine Pueblos retained earnings balance as of January 1, 2017. | ||
Method | Balance | |
Initial value method | ||
Partial equity method | ||
Equity method | ||
End of Worksheet |
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