Question
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and
On January 1, 2020, Corgan Company acquired 80 percent of the outstanding voting stock of Smashing, Inc., for a total of $980,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $700,000, retained earnings of $250,000, and a noncontrolling interest fair value of $245,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
Net Income | Dividends Declared | Inventory Purchases from Corgan | |||||||
2020 | $ | 150,000 | $ | 35,000 | $ | 100,000 | |||
2021 | 130,000 | 45,000 | 120,000 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 percent of the current year purchases remain in Smashing's inventory.
- Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
- Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
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