Problem $3-28($Algo$)($LO $3-1,3-3$a$)$

Kelsey Corporation acquired $100$ percent of Snowdon Company$$s outstanding common stock on January $1$ for $$654,200$ in cash. Snowdon reported net assets with a carrying amount of $$418,000$ at that time. Some of Snowdon$$s 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 $31.$