Patrick Corporation acquired 100 percent of OBrien Companys outstanding common stock on January 1, for $550,000 in cash. OBrien reported net assets with a carrying amount of $350,000 at that time. Some of OBriens assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:

	Book Values	Fair Values
Trademarks (indefinite life)	$ 60,000	$160,000
Customer relationships (5-year remaining life)	0	75,000
Equipment (10-year remaining life)	342,000	312,000

Any goodwill is considered to have an indefinite life with no impairment charges during the year.

Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. OBrien declared and paid dividends in the same period. Credit balances are indicated by parentheses.

	Patrick	OBrien
Revenues	$ (1,125,000)	$ (520,000)
Cost of goods sold	300,000	228,000
Depreciation expense	75,000	70,000
Amortization expense	25,000	0
Income from OBrien	(210,000)	0
Net Income	$ (935,000)	$ (222,000)
Retained earnings 1/1	$ (700,000)	$ (250,000)
Net Income	(935,000)	(222,000)
Dividends declared	142,000	80,000
Retained earnings 12/31	$ (1,493,000)	$ (392,000)
Cash	$ 185,000	$ 105,000
Receivables	225,000	56,000
Inventory	175,000	135,000
Investment in OBrien	680,000	0
Trademarks	474,000	60,000
Customer relationships	0	0
Equipment (net)	925,000	272,000
Goodwill	0	0
Total assets	$ 2,664,000	$ 628,000
Liabilities	$ (771,000)	$ (136,000)
Common stock	(400,000)	(100,000)
Retained earnings 12/31	(1,493,000)	(392,000)
Total liabilities and equity	$ (2,664,000)	$ (628,000)

Show how Patrick computed the $210,000 Income of OBrien balance. Discuss how you determined which accounting method Patrick uses for its investment in OBrien.

Without preparing a worksheet or consolidation entries, determine and explain the totals to be reported for this business combination for the year ending December 31.

Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and OBrien for the year ending December 31

Using the Drop down Please enter a notation in the left column to indicate: A= Unamortized allocation C= Credit balance D= intercompany dividend E=Excess Amortization I= Intercompany income accrual S= Subsidiary Stockholders Equity

Consolidation Entries Debit Consolidated Totals Patrick O'Brien Credit Accounts Revenues Cost of goods sold Depreciation expense Amortization expense Income of O'Brien Net income $ (1,125,000) $ (520,000) 228,000 70,000 300,000 75,000 25,000 210,000 $ (935,000) $ (222,000 Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31 $ (700,000) $ (250,000) (935,000) (222,000) 80,000 (392,000) 142,000 $ (1,493,000) $ Cash Receivables Inventory Investment in O'Brien $ 185,000 $ 105,000 56,000 135,000 225,000 175,000 680,000 474,000 Trademarks Customer relationships Equipment (net) Goodwill Total assets 60,000 272,000 $ 2,664,000 $ 628,000 925,000 Liabilities Common stock Retained earnings Total liabilities and equity $ (771,000) $ (136,000) (400,000) (100,000) (392,000) $ (2,664,000) $(628,000 1,493,000