Patrick Corporation acquired 100 percent of O'Brien Company's outstanding common stock on January 1 for $700,400 in cash. O'Brien reported net assets with a carrying amount of $440,000 at that time. Some of O'Brien's assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Trademarks (indefinite life) Customer relationships (5-year remaining life) Equipment (10-year remaining life) Book Fair Values Values $ 94,500 $ 238,500 75,000 352,000 310,300 Any goodwill is considered to have an indefinite life with no impairment charges during the year. The following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O'Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Revenues Cost of goods sold Depreciation expense Amortization expense Income from O'Brien Net income Retained earnings 1/1 Patrick $(1,725,000) 460,000 104,400 34,800 (286,570) $(1,412,370) $ (796,000) O'Brien $ (676,000) 306,000 72,600 0 0 $ (297,400) $ (340,000) (1,412,370) 167,000 $(2,041,370) $ 203,000 294,000 181,000 881,970 516,000 (297,400) 105,000 $ (532,400) $ 154,500 74,700 205,000 69,900 Net income Dividends declared Retained earnings 12/31 Cash Receivables Inventory Investment in O'Brien Trademarks Customer relationships Equipment (net) Goodwill Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity 324,000 932,000 0 $ 3,007,970 $ (566,600) (400,000) (2,041,370) $(3,007,970) $ 828,100 $ (195,700) (100,000) (532,400) $ (828,100) a. Which investment method did Patrick use to compute the $286,570 income from O'Brien? b. Determine the totals to be reported for this business combination for the year ending December 31. c. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O'Brien for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O'Brien for the year ending December 31. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and credit columns should be entered as positive. Input all amounts as positive values.) Show less Consolidated Totals Accounts Revenues Cost of goods sold Depreciation expense Amortization expense Income from O'Brien Net income PATRICK CORPORATION AND CONSOLIDATED SUBSIDIARY O'BRIEN Consolidation Worksheet For Year Ending December 31 Consolidation Entries Patrick O'Brien Debit Credit $ (1,725,000) $ (676,000) 460,000 306,000 104,400 72,600 34,800 0 (286,570) $ (1,412,370) $ (297,400) 0 Retained earnings, 1/1 (796,000) (340,000) Net income (above) Dividends declared Retained earnings, 12/31 (1,412,370) 167,000 (2,041,370) $ (297,400) 105,000 (532,400) $ $ 154,500 74,700 205,000 Cash Receivables Inventory Investment in O'Brien Trademarks Customer relationships Equipment (net) Goodwill Total assets 203,000 $ 294,000 181,000 881,970 516,000 0 932,000 0 3,007,970 $ 69,900 0 324,000 0 $ 828,100 Liabilities Common stock Retained earnings (above) Total liabilities and equity (566,600) (400,000) 2,041,370 (3,007,970) $ (195,700) (100,000) (532,400) (828,100) $ $ 0 $ 0