Problem 3-28 (LO 3-1, 3-3a) Patrick Corporation acquired 100 percent of O'Brien Company's outstanding common stock on January 1, for $720,300 in cash. O'Brien reported net assets with a carrying amount of $405,000 at that time. Some of O'Brien's 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) Customer relationships (5-year remaining life) Equipment (10-year remaining life) $ 107,000 299,000 0 104,400 393,000 340,800 Any goodwill is considered to have an indefinite life wth 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. O'Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Patrick $(1,380,000) O'Brien (704,000) 320,000 89,400 Cost of goods sold Depreciation expense Amortization Income from o'Brien 368,000 104,700 36,800 278,940 expense $(1,149,440) $(794,000) (1,149,440) $ (294,600) $ (296,000) (294,60o) Net income Retained earnings 1/1 Net income Dividends declared 104,000 Retained earnings 12/31 $(1,777,440) $ (486,600) 121,000 57,900 186,000 $242,000 Receivables Inventory Investment in O'Brien Trademarks Customer relationships Equipment (net) Goodwill 338,000 246,000 886,240 526,000 83,700 281,000 $ 729,600 928,000 Total assets 3,166,240 Liabilities Common stock Retained earnings 12/31 $ (988,800 (143,000) (100,00o) (400,00o) 1,777,440) (486.600 Total 1iabilities and equity $(3,166,240) (729,600) a. Which investment method did Patrick use to compute the $278,940 income from O'Brien? b. Determine the totals to be reported for this business combination for the year ending December 31 c. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O'Brien for the year ending December 31