Question
On January 1, 2018, Strait Corp. purchased 100% of the outstanding common stock of Amarillo Company. On the date of the acquisition, Amarillo identifiable net
On January 1, 2018, Strait Corp. purchased 100% of the outstanding common stock of Amarillo Company. On the date of the acquisition, Amarillo identifiable net assets had fair values that approximated their recorded book values. The acquisition resulted in no goodwill. Strait Corp. uses the cost method to account for its investment in Amarillo Company.
The following financial statement information is for Amarillo Company for the year ended December 31, 2019:
| 2019 | 2018 |
Revenues | $100,000 | $120,000 |
Expenses | 47,000 | 65,000 |
Net income | $53,000 | $55,000 |
|
|
|
Beginning of year retained earnings | $680,000 | $650,000 |
Net income | 53,000 | 55,000 |
Dividends | -17,000 | -25,000 |
End of year retained earnings | $716,000 | $680,000 |
|
|
|
Cash and receivables | $235,000 | $180,000 |
Property, plant & equipment, net | 880,000 | 800,000 |
Intangible assets | 505,000 | 450,000 |
Total assets | $1,620,000 | $1,430,000 |
|
|
|
Current liabilities | $164,000 | $60,000 |
Noncurrent liabilities | 400,000 | 350,000 |
Common stock | 50,000 | 50,000 |
Additional paid in capital | 290,000 | 290,000 |
Retained earnings | 716,000 | 680,000 |
Total liabilities and stockholders equity | $1,620,000 | $1,430,000 |
- What is the balance in the Equity Investment account in Strait Corp.s pre-consolidation balance sheet on December 31, 2019?
a. $ 990,000
b. $1,020,000
c . $1,056,000
d. $1,370,000
- For this question only, assume that Amarillo identifiable net assets had fair values that approximated their recorded book values, except for equipment which had fair value that was $50,000 higher than the book value and had a remaining useful life of 10 years. The acquisition also resulted in $125,000 of goodwill.
What is the amount of the [ADJ] entry necessary to prepare the consolidated financial statements for the year ended December 31, 2019?
a. $ 25,000
b. $ 30,000
c. $ 36,000
d. $ 98,000
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