Question
Mason Corporation purchased 85% of the common stock of Hudson Company for cash of $10,676,850 on January 1, 2015 when Hudsons stockholders equity consisted of
Mason Corporation purchased 85% of the common stock of Hudson Company for cash of $10,676,850 on January 1, 2015 when Hudsons stockholders equity consisted of $1,000,000 of common stock and $10,000,000 of retained earnings. The fair value of the noncontrolling interest at that date was 1,884,150. All of Hudsons assets and liabilities had equal fair values and book values except for inventory which had book value $170,000 in excess of fair valueand the assets and liabilities in the table below that had fair values in excess of book values for the indicated amounts. The inventory was sold in 2015, and the land had not been sold by the end of 2016 which is the current year. The remaining useful lives and maturities of the others assets and liabilities are indicated in the table below:
Asset/Liability | Excess of Fair Value over Book Value | Remaining Life/Term at Acquisition1/1/15 |
Land | $39,000 | Unknown |
Notes Receivable | 50,000 | 5 years |
Copyrights | 812,000 | 7 years |
Buildings | 280,000 | 4 years |
Equipment | 300,000 | 10 years |
Bonds Payable | 350000 | 7 years |
Hudsons 2015 net income was $1,300,000, and it declared and paid $300,000 of dividends.
Masons Investment in Hudson had a December 31, 2015 balance of $11,521,750.
Hudsons December 31, 2016 accounts payable included $83,000 payable to Mason.
The December 31, 2016 preclosing trial balances for Mason and for Hudson are provided in the worksheet.
Problem 1Prepare all equity method entries required for Mason for 2015 and 2016
Problem 2Prepare all consolidation entries required to derive the information necessary to report the consolidated entity for 2015 and for 2016.
Here is the trial balance information
Trial Balances at December 31, 2016 | |||||
Mason Corporation | Hudson Company | ||||
Item | Debit | Credit | Debit | Credit | |
Cash | $ 28,289,000 | $ 2,145,200 | |||
Accounts Receivable | 33,000,000 | 4,000,000 | |||
Notes Receivable | 4,800,000 | ||||
Investment in Hudson | 13,293,150 | - | |||
Held-to-Maturity Securities | 14,000,000 | ||||
Inventory | 4,300,000 | 1,500,000 | |||
Land | 1,650,000 | 500,000 | |||
Buildings | 16,000,000 | 8,600,000 | |||
Equipment | 8,350,000 | 5,000,000 | |||
Copyrights | 600,000 | ||||
Cost of Goods Sold | 48,000,000 | 14,907,000 | |||
Depreciation Expense--Buildings & Equipment | 2,900,000 | 953,000 | |||
Amortization Expense | 200,000 | ||||
Other Operating Expenses | 370,000 | 3,172,800 | |||
Interest Expense | 2,150,000 | 680,000 | |||
Dividends | 3,250,000 | 240,000 | |||
Allowance for Doubtful Accounts | 2,750,000 | 325,000 | |||
Accumulated Depreciation--Buildings | 11,200,000 | 2,200,000 | |||
Accumulated Depreciation--Equipment | 3,600,000 | 1,180,000 | |||
Accounts Payable | 3,680,000 | 1,180,200 | |||
Bonds Payable | 22,500,000 | 8,000,000 | |||
Common Stock | 6,600,000 | 1,000,000 | |||
Additional Paid-in Capital | 41,083,500 | ||||
Retained Earnings | 22,163,250 | 11,000,000 | |||
Sales | 60,000,000 | 22,000,000 | |||
Income from Hudson | 1,975,400 | - | |||
Interest Revenue | - | 412,800 | |||
Totals | $ 175,552,150 | $ 175,552,150 | $ 47,298,000 | $ 47,298,000 |
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