Hoyle, Schaefer and Doupnik Chapter 3 Problem 29 Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2021. Michael acquired all of Aarons outstanding voting stock on January 1, 2017, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Companys stock actively traded at $23.50 per share.

On the date of acquisition, Aaron reported Retained Earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year life with no residual value. Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Requirement: Using the preceding information, prepare consolidation worksheet for these two companies as of December 31, 2021.

Michael Aaron Income Statement Revenues ($610,000) ($370,000) Cost of Goods sold $270,000 $140,000 Amortization Expense $115,000 $80,000 Dividend Income ($5,000) Net Income ($230,000) ($150,000) Statement of Retained Earnings Retained Earnings 1/1/2021 ($880,000) ($490,000) Net Income (above) ($230,000) ($150,000) Dividend Paid $90.000 $5,000 Retained Earnings 12/31/2021 ($1,020,000) ($635,000) Balance Sheet Cash $110,000 $15,000 Receivables $380,000 $220,000 Inventory $560,000 $280,000 Investment in Subsidiary $470,000 $0 Copyrights $460,000 $340,000 Royalty Agreements $920,000 $380,000 Total Assets $2.900.000 $1.235.000 Liabilities ($780,000) ($470,000) Preferred Stock ($300,000) $0 Common Stock ($500,000) ($100,000) Additional Paid-in Capital ($300,000) ($30,000) Retained Earnings 12/31/2021 ($1,020,000) (5635,000) Total Liabilities and Equity 1$2.900.000) ($1.235.000) Account Parent Subsidiary Consolidation Entries Debit Credits Consolidated Totals Income Statement Revenues ($610,000) ($370,000) Cost of Goods sold $270,000 $140,000 Amortization Expenses $115,000 $80,000 Dividend Income ($5,000) Net Income ($230,000) ($150,000) Statement of Retained Earnings Retained Earnings 1/1/2021 ($880,000) ($490,000) Net Income (above) ($230,000) ($150,000) Dividend Paid $90,000 $5,000 Retained Earnings 12/31/2021 ($1,020,000) ($635,000) Balance Sheet Cash $110,000 $15,000 Receivables $380,000 $220,000 Inventory $560,000 $280,000 Investment in Subsidiary $470,000 $0 Copyrights Royalty Agreements $460,000 $920,000 $340,000 $380,000 Total Assets $2,900,000 $1,235,000 Liabilities ($780,000) ($470,000) Preferred Stocks ($300,000) $0 Common Stock ($500,000) ($100,000) Additional Paid-in Capital ($300,000) ($30,000) Retained Earnings 12/31/2021 ($1,020,000) ($635,000) Total Liabilities and Equity ($2,900,000) ($1,235,000)