Question 5

On January 1, 2021, Brooks Corporation exchanged $1,259,000 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,145,000. Chandlers individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $264,000 with an estimated remaining life of six years. The Chandler acquisition was Brookss only business combination for the year.

In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.

On December 31, 2021, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.

	Brooks Corp.				Chandler Inc.
Income Statement
Revenues	$	(662,000	)		$	(553,000	)
Cost of goods sold		173,000				196,000
Gain on bargain purchase		(150,000	)			0
Depreciation and amortization		140,000				147,000
Equity earnings from Chandler		(166,000	)			0
Net income	$	(665,000	)		$	(210,000	)
Statement of Retained Earnings
Retained earnings, 1/1	$	(1,800,000	)		$	(845,000	)
Net income (above)		(665,000	)			(210,000	)
Dividends declared		200,000				50,000
Retained earnings, 12/31	$	(2,265,000	)		$	(1,005,000	)
Balance Sheet
Current assets	$	371,000			$	528,000
Investment in Chandler		1,525,000				0
Trademarks		115,000				225,000
Patented technology		341,000				412,000
Equipment		683,000				310,000
Total assets	$	3,035,000			$	1,475,000
Liabilities	$	(235,000	)		$	(170,000	)
Common stock		(535,000	)			(300,000	)
Retained earnings, 12/31		(2,265,000	)			(1,005,000	)
Total liabilities and equity	$	(3,035,000	)		$	(1,475,000	)

Note: Parentheses indicate a credit balance.

a. Determine the following account balances:

• Gain on bargain purchase.
• Earnings from Chandler.
• Investment in Chandler.

b. Prepare a December 31, 2021, consolidated worksheet for Brooks and Chandler.

*ACCOUNTS OPTIONS*

Acquisition fair value of net assets, Chandler book value, Chandler net income, Consideration transferred, Dividends declared, Equity earnings in Chandler, Gain on margin purchase, Investment in Chandler, Technology amortization, Technology undervaluation

Complete this question by entering your answers in the tabs below. Determine the following account balances. (Input all amounts as positive values.)