Problem $3$

Pueblo Corporation acquired all of Spartan Company$$s outstanding stock on January $1,2018,$ for $$1,320,000$ cash. Spartan$$s accounting records reflected net assets on that date of $$1,034,000,$ although equipment with a $10-$year life was undervalued on the records by $$198,000.$ Any recognized goodwill is considered to have an indefinite life.

Spartan reports net income in $2018$ of $$198,000$ and $$220,000$ in $2019.$ The subsidiary paid dividends of $$44,000$ in each of these two years.

Financial figures for the year ending December $31,2020,$ follow. Credit balances are indicated by parentheses.

Pueblo Spartan

Revenues. $$(1,760,000)$ $$(1,320,000)$

Cost of goods sold $220,000330,000$

Depreciation expense. $660,000770,000$

Investment income. $.(44,000)0$

Net income $$(924,000)$ $$(220,000)$

Retained earnings $1/1/20..$ $$(2,420,000)$ $$(704,000)$

Net income $(924,000)(220,000)$

Dividends paid $264,00044,000$

Retained earnings, $12/31/17$ $$(3,080,000)$ $$(880,000)$

Current assets. $$660,000$ $$220,000$

Investment in subsidiary $1,320,0000$

Equipment $($net$)1,980,0001,320,000$

Buildings $($net$)1,760,000880,000$

Land. $1,320,000220,000$

Total assets $$7,040,000$ $$2,640,000$

Liabilities. $$(1,980,000)$ $$(1,100,000)$

Common stock. $(1,980,000)(660,000)$

Retained earnings $..(3,080,000)(880,000)$

Total liabilities and equity. $$(7,040,000)$ $$(2,640,000)$

Complete the following:

a$.$ Determine the December $31,2020,$ consolidated balance for each of the following accounts:

$$ Depreciation Expense $$1,449,800$

$$ Dividends Paid $308,000$

$$ Revenues

$$ Equipment

$$ Buildings

$$ Goodwill

$$ Common Stock

b$.$ How does the parent$$s choice of an accounting method for its investment affect the balances computed in requirement $($a$)?$

c$.$ Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?

d$.$ If the parent company had used a different method of accounting for this investment, how could that method have been identified?

e$.$ What would be Pueblo$$s balance for retained earnings as of January $1,2020,$ if each of the following methods had been in use?

$$ Initial value method

$$ Partial equity method

$$ Equity method