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Problem 3 - 2 8 ( Algo ) ( LO 3 - 1 , 3 - 3 a ) Kelsey Corporation acquired 1 0 0

Problem 3-28(Algo)(LO 3-1,3-3a)
Kelsey Corporation acquired 100 percent of Snowdon Companys outstanding common stock on January 1 for $654,200 in cash. Snowdon reported net assets with a carrying amount of $418,000 at that time. Some of Snowdons assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:
Asset Book Values Fair Values
Trademarks (indefinite life) $ 97,000 $ 221,000
Software (5-year remaining life)078,600
Equipment (10-year remaining life)374,000327,800
No impairment charges occurred 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. Snowdon declared and paid dividends in the same period. Credit balances are indicated by parentheses.
Accounts Kelsey Snowdon
Revenues $ (1,372,500) $ (688,000)
Cost of goods sold 366,000312,000
Depreciation expense 94,50093,600
Amortization expense 34,8000
Income from Snowdon (271,300)0
Net income $ (1,148,500) $ (282,400)
Retained earnings, 1/1 $ (844,000) $ (318,000)
Net income (1,148,500)(282,400)
Dividends declared 165,000103,000
Retained earnings, 12/31 $ (1,827,500) $ (497,400)
Cash $ 249,000 $ 122,000
Receivables 414,00085,200
Inventory 258,000146,000
Investment in Snowdon 822,5000
Trademarks 514,00065,700
Software 00
Equipment (net)958,000328,000
Goodwill 00
Total assets $ 3,215,500 $ 746,900
Liabilities $ (988,000) $ (149,500)
Common stock (400,000)(100,000)
Retained earnings, 12/31(1,827,500)(497,400)
Total liabilities and equity $ (3,215,500) $ (746,900)
Required:
Which investment method did Kelsey use to compute the $271,300 income from Snowdon?
Determine 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 Kelsey and Snowdon for the year ending December 31.

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