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On January 1, 2019, Triple A Company acquired Bodyguard Companys outstanding common stock for $842,000 in cash. As of that date the following information was

On January 1, 2019, Triple A Company acquired Bodyguard Companys outstanding common stock for $842,000 in cash. As of that date the following information was acquired from Bodyguard, the subsidiary of Triple A:

Building (12-year life) was undervalued on its balance sheet by $72,000

Equipment (10-year life) was undervalued by $10,000

Licensing agreement (20-year life) unrecorded, assessed at $40,000

Book value as at January 1, 2019 was $720,000

Net income reported during 2019 was $100,000

Dividends paid in 2019 $30,000

Earnings by Bodyguard (subsidiary) in 2020 $120,000

Dividends distributed by Bodyguard in 2020 $20,000

As of December 31, 2021Triple A and Bodyguard reported the following for the year:

Triple A

December 31, 2021

Bodyguard

December 31, 2021

Debit

Credit

Debit

Credit

Buildings

$1,540,000

$460,000

Cash and receivables

50,000

90,000

Common stock

$900,000

$400,000

Dividends paid

70,000

10,000

Equipment

280,000

200,000

Cost of goods sold

500,000

120,000

Depreciation expense

100,000

60,000

Inventory

280,000

260,000

Land

330,000

250,000

Liabilities

480,000

260,000

Retained earnings 1/1/21

1,360,000

490,000

Revenues

900,000

300,000

Required:

a. If Triple A applies the equity method, what is its investment account balance as of December 31, 2021?

b. If Triple A applies the initial value method, what is its investment account balance as of December 31, 2021?

c. Regardless of the accounting method in use by Triple A, what are the consolidated totals as of December 31, 2021, for each of the following accounts?

Buildings Revenues

Equipment Net income

Land Investment in Bodyguard

Depreciation expense Dividends paid

Amortization expense Cost of goods sold

d. Prepare the worksheet entries required on December 31, 2021, to consolidate the financial records of these two companies. Assume that Triple A applied the equity method to its investment account.

e. Discuss how would the worksheet entries in requirement (d) change if Triple A used the initial value method? Do not record the entries.

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