Question
On January 1, 2015, Brooks Corporation exchanged $1,182,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler
On January 1, 2015, Brooks Corporation exchanged $1,182,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,127,500. Chandlers individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $210,000 with an estimated remaining life of six years. The Chandler acquisition was Brookss only business combination for the year. |
In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value. |
On December 31, 2015, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period. |
Brooks Corp. | Chandler Inc. | ||||||||
Income Statement | |||||||||
Revenues | $ | (508,500 | ) | $ | (655,000 | ) | |||
Cost of goods sold | 210,000 | 245,000 | |||||||
Gain on bargain purchase | (155,000 | ) | 0 | ||||||
Depreciation and amortization | 144,000 | 167,000 | |||||||
Equity earnings from Chandler | (208,000 | ) | 0 | ||||||
Net income | $ | (517,500 | ) | $ | (243,000 | ) | |||
Statement of Retained Earnings | |||||||||
Retained earnings, 1/1 | $ | (1,915,000 | ) | $ | (827,500 | ) | |||
Net income (above) | (517,500 | ) | (243,000 | ) | |||||
Dividends declared | 300,000 | 60,000 | |||||||
Retained earnings, 12/31 | $ | (2,132,500 | ) | $ | (1,010,500 | ) | |||
Balance Sheet | |||||||||
Current assets | $ | 205,000 | $ | 379,500 | |||||
Investment in Chandler | 1,485,500 | 0 | |||||||
Trademarks | 192,000 | 279,000 | |||||||
Patented technology | 310,000 | 457,000 | |||||||
Equipment | 664,000 | 343,000 | |||||||
Total assets | $ | 2,856,500 | $ | 1,458,500 | |||||
Liabilities | $ | (189,000 | ) | $ | (148,000 | ) | |||
Common stock | (535,000 | ) | (300,000 | ) | |||||
Retained earnings, 12/31 | (2,132,500 | ) | (1,010,500 | ) | |||||
Total liabilities and equity | $ | (2,856,500 | ) | $ | (1,458,500 | ) | |||
Note: Parentheses indicate a credit balance.
a. | Determine the following account balances. |
X X X X X Gain on Bargain Purchase:
X X X Equity Earning in Chandler:
X X X X Investment in Chandler 12/31/15: |
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