Question
Problem 1: Consolidation Worksheet: Acquired Subsidiary (1)Alpha Company acquired all of Beta Companys voting stock on 1/1/2017, by issuing 10,000 shares of its $10 par
Problem 1: Consolidation Worksheet: Acquired Subsidiary (1)Alpha Company acquired all of Beta Companys voting stock on 1/1/2017, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $14 per share). As of that date, Beta had stockholders equity totaling $105,000. Land shown on Betas accounting records was undervalued by $10,000. Equipment (with five-year remaining life) was undervalued by$5,000. A secret formula developed by Beta was appraised at $20,000 with an estimated life of 20 years. The worksheet on the next page contains the separate financial statements for the two companies for the year ending December 31, 2021. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. Required: Answer the following questions based on the information above and that in the worksheet:
1. Which accounting method did Alpha use to record its investment in Beta? The equity method, the partial equity method, or the cost method?
2. How much is Betas (acquisition-date) fair-value-based net income of 2021?
3. Assume Alpha did not make additional investment in Beta during 2017-2021. How much is Betas Retained Earnings account balance at January 1, 2017, the date of its acquisition by Alpha?
| Income Statement | Alpha Company | Beta Company | Consolidation Entries | Consolidated Totals | |
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| Dr. | Cr. |
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| Revenues | (485,000) | (190,000) |
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| Cost of goods sold | 160,000 | 70,000 |
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| Depreciation expense | 130,000 | 52,000 |
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| Amortization expense | -0- | -0- |
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| Equity in Beta net income | (66,000) | -0- |
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| Net Income | (261,000) | (68,000) |
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| Statement of Retained Earnings |
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| Retained earnings , 1/1/21 | (659,000) | (98,000) |
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| + Net income | (261,000) | (68,000) |
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| - Dividends declared | 175,500 | 40,000 |
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| Retained earnings, 12/31/21 | (744,500) | (126,000) |
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| Balance Sheet |
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| Current assets | 268,000 | 75,000 |
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| Investment in Beta | 216,000 | -0- |
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| Land | 427,500 | 58,000 |
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| Buildings and equipment(net) | 713,000 | 161,000 |
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| Formula | -0- | -0- |
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| Goodwill | -0- | -0- |
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| Total Assets | 1,624,500 | 294,000 |
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| Current liabilities | (110,000) | (19,000) |
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| Long-term liabilities | (80,000) | (84,000) |
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| Common stock | (600,000) | (60,000) |
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| Additional paid-in capital | (90,000) | (5,000) |
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| Retained earnings, 12/31/21 | (744,500) | (126,000) |
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| Total Liabilities & Equity | (1,624,500) | (294,000) |
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
