what would the balances be for the parent on 12/31/2016 before the consolidation? Would there be goodwill or bargain purchase?

ACIS 4114 Advanced Accounting Spring 2016 Project 3 Attached please find another \"request\" for your consultation services from \"college buddy\". The cover letter supplied by college buddy should provide you with sufficient information regarding the requirements of the project, but just in case anything is unclear, I wanted to add a specific list of what is needed. First, you should provide a list of all journal entries that you record as part of putting together Mother Company's consolidated financial statements with a clear indication of where the journal entries are posted. They could be posted to Mother Company's books, or in the Consolidation Worksheets (all entries to be recorded on Nephew and Niece Companies' books were completed correctly by their accountants). The journal entries should be explicitly shown. Amounts shown in the consolidated worksheet, or account balances changed to reflect entries not presented will not satisfy this requirement. Second, you should provide a completed consolidation spreadsheet for Mother Company. Finally, you should submit a consolidated Balance Sheet, Statement of Retained Earnings, and Income Statement for Mother Company, for 2016 (year ended Dec. 31, 2016, or as of Dec. 31, 2016, as appropriate). These financial statements should be for the consolidated company to the extent consolidation is appropriate. The financial statements should be presented in good form. The consolidation worksheet itself will not satisfy this requirement, and the title of each financial statement should clearly indicate that it relates to Mother Company's consolidated results. College buddy doesn't clarify this, but investments to be consolidated should be accounted for on Mother Company's financial statements using the equity method. The project is due by 4PM on Wednesday, April 27th. It can be submitted either electronically as an email attachment (or two), or by hardcopy. Please let me know if you have any questions, or if you feel there is any additional information you need from College Buddy in order to complete this assignment. You should assume very little about College Buddy's accounting skill set. So, it would be best to read everything carefully to make sure there isn't any information you need that he left out. Prof. Hansen Hint: We did not cover this in Chapter 1, but under the full equity method, there are some adjustments necessary for inter-entity transfers of depreciable assets that need to be recorded in the investor's books. Any gain on such a transfer would need to be deferred (similar to the deferral of gross profit on inter-entity inventory transfers). The full amount of the gain will charged against \"Equity in Investee's Income\" (where \"Investee\" would normally be replaced by the name of the investee company) as a debit, and the credit side of the entry will be a reduction to the investment account. Each year the investor will get to recognize a portion of this gain equal to the difference between the depreciation that would have been recognized by the selling company and the depreciation that was recognized by the purchasing company. This will be done by debiting the investment account, and crediting \"Equity in Investee's Income\". Dear ACIS 4114 Student, Thank you very much for your help with our financial statements last year, all of us here at Mother Company really appreciate your help. Because you guys did such a good job, I would like to have your help preparing our financials for this year (2016) as well. We have done all of the accounting except the investment accounts for the year, and if you could let me know how to account for those I would greatly appreciate it. Our investment activities for the year all occurred on January 1, 2016, and are as follows: First, we sold all 20% of the stock we owned in Niece for $115,000. Second, we purchased another 25% of Nephew Company for $1,200,000 (bringing our ownership up to 55%). Professor Hansen also asked me to make sure that you knew that the correct balance in the Investment in Nephew account on 12/31/15 was $977,625, and the correct balance in the Investment in Niece account on 12/31/15 was $115,000. We plan on holding our investment Nephew for the foreseeable future, though we could sell it if we need the cash. (It has continued to do well; we estimate the Nephew Company stock was worth $2,800,000 as of December 31, 2016!). We also appreciate the work you did a few months ago to show us the effect that purchasing Son Company would have on our financial statements. After reviewing it, we decided not to purchase Son Company. When determining the appropriate price to pay for our January 1, 2016 investment in Nephew, we determined the following information: Nephew's book value as of January 1, 2016 was $2,885,000. In addition, we determined that their equipment was undervalued by $125,000 and had 5 years remaining useful life, they owned a patent that was not recorded on their books, but had a fair value of $180,000 and had 9 years remaining useful life, and their land was undervalued by $410,000. We continued to buy inventory from Nephew during 2016 (see footnote 5 of our financial statements for the details) and I remember when you prepared last year's financial statements you needed to know the percentage that was not resold to a third party by the end of the year. We have not resold 30% of the inventory that we purchased from Nephew this year. However, we have resold all of the inventory that we bought from Nephew last year. During 2016, Nephew Company earned $240,000 of net income and paid us dividends of $16,500 on both March 31, 2016 and September 30, 2016, for a total of $33,000 for the entire year. I have attached a copy of preliminary balance sheets (Dec. 31, 2016), and statements of retained earnings and income statements for the year ended Dec. 31, 2016 for both our company (Mother) and for Nephew Company. I have also attached the footnotes for our (Mother Company's) financial statements. As you know, I don't know very much about accounting for investments. Therefore, we haven't recorded any entries related to any of these investments this year (not even the sale of the Niece investment, or the additional purchase of Nephew shares). You guys did such a good job last year that I thought I would let you do everything. I look forward to seeing the financial statements. Please let Prof. Hansen know if there is any additional information that you need from me and I will get it to your promptly. Sincerely, College Buddy Attachment A: Mother Company Financial Statements Mother Company Balance Sheet, As of December 31, 2016 Cash Accounts Receivable Inventory Investment in Nephew Company Investment in Niece Company Land and Buildings Patent Equipment Other Assets Total Assets Accounts Payable Bonds Payable Discount on Bonds Payable Other Liabilities Common Stock Additional Paid in Capital Retained Earnings, 12/31 Total Liabilities and Equity $1,688,825 $285,000 $415,700 $977,625 $115,000 $995,000 $110,000 $235,300 $27,775 $4,850,225 ($540,300) ($1,000,000) $12,200 ($63,930) ($1,225,000) ($715,000) ($1,318,195) ($4,850,225) Mother Company Statement of Retained Earnings, for the 12 months ending December 31, 2016 Retained Earnings, 1/1/16 ($1,110,695) Net Income ($387,500) Dividends Declared $180,000 Retained Earnings, 12/31/16 ($1,318,195) Mother Company Income Statement, for the 12 months ending December 31, 2016 Revenues ($3,015,000) Interest Income ($43,500) Gain on Sale of Equipment ($35,000) Total Revenues ($3,093,500) Cost of Sales $2,200,700 Interest Expense $57,000 Advertising Expense $210,500 Depreciation and Amortization Expense $237,800 Total Expenses $2,706,000 Net Income ($387,500) Mother Company - Footnotes to the Financial Statements Note 1--Summary of Significant Accounting Policies a. ACCOUNTING PRINCIPLES The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). b. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. c. REVENUE RECOGNITION Sales are recognized upon shipment of merchandise. The Company does not provide for allowances or return of goods except for cause. When an allowance or return occurs, it is accounted for as a reduction of sales. Sales allowances or returns are not significant to the operations of the Company. d. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation and amortization for financial accounting purposes are provided by using the straight line method over the estimates useful lives of the assets. Note 2Investment Securities In accordance with U.S. GAAP, Mother Company accounts for equity investments through which Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee's activities are accounted for using the equity method. Investments through which we are not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method. In accordance with U.S. GAAP, the Company bases the method of accounting for equity investments on the ability to provide significant influence regardless of the percent-ownership. Note 3Dividend Income In 2016, Mother Company declared and paid dividends in the amount of $180,000 to shareholders. Additionally, Mother Company received dividends from its investment Nephew Company during 2016. Note 4Property, Plant and Equipment The following table displays the details of property, plant and equipment, which are stated net of Accumulated Depreciation: Land & Buildings Equipment Total Purchase Price 1,400,000 370,000 1,770,000 Accumulated Dep. 405,000 134,700 539,700 Net Value 995,000 235,300 1,230,300 Note 5 Related Party Transactions During 2016, Mother Company participated in transactions with a related party, Nephew Company. On January 2, 2016, Nephew Company purchased equipment from Mother Company for 136,500. As of that date, the equipment had a book value on Mother's books of $101,500 and had a 7 year remaining expected life. Both Mother Company and Nephew Company use the straight-line method of depreciation for machinery and equipment. In addition, during 2016, Mother Company purchased inventory with an original cost of $80,000 from partially owned Nephew Company for $160,000. Mother Company - Board of Directors Joshua Kramer, Chief Executive Officer and Chairman of the Board Joshua Kramer has served as our Chief Executive Officer since October 2005 and our Chairman of the Board since inception. Mr. Kramer currently serves as a member of the board of directors of Nephew Company. Mr. Kramer holds an MBA degree from Stanford University and a B.A. from James Madison University. Emily McHale, Chief Executive Officer and Chairman of the Board, AdUSA, Inc. Emily McHale has served as one of our directors since March 2006. In late 2007, Ms. McHale founded AdUSA, Inc. where she is now Executive Chairman of the Board. Previously, Ms. McHale served on the board of MarketMe, Inc. from January 2001 until May 2005. Ms. McHale holds a B.S. in Marketing from the University of Missouri. Kyle Marry, Investor Kyle Marry has served as one of our directors since July 2008. Mr. Marry was previously on the board of Playtime, Inc. from June 2000 until March 2004. From 1978 until his retirement in 1999, Mr. Marry served in management roles at Accounting for You, Inc. where he became worldwide managing partner of market development and a member of the firm's executive committee. Mr. Marry holds an MBA degree from Harvard as well as a B.S. in Accounting from Boston College. Attachment B: Nephew Company Financial Statements Nephew Company Balance Sheet, As of December 31, 2016 Cash Accounts Receivable Inventory Land and Buildings Software Equipment Other Assets Total Assets Accounts Payable Bonds Payable Discount on Bonds Payable Other Liabilities Common Stock Additional Paid in Capital Retained Earnings, 12/31 Total Liabilities and Equity $262,700 $314,200 $375,450 $835,350 $1,044,500 $615,100 $57,750 $3,505,050 ($108,250) ($275,000) $8,700 ($65,500) ($630,000) ($1,170,000) ($1,265,000) ($3,505,050) Nephew Company Statement of Retained Earnings, for the 12 months ending December 31, 2016 Retained Earnings, 1/1/16 ($1,085,000) Net Income ($240,000) Dividends Declared $60,000 Retained Earnings, 12/31/16 ($1,265,000) Nephew Company Income Statement, for the 12 months ending December 31, 2016 Revenues ($2,010,000) Interest Income ($17,850) Total Revenues ($2,027,850) Cost of Sales $1,245,700 Interest Expense $265,600 Advertising Expense $114,750 Depreciation Expense $161,800 Total Expenses $1,787,850 Net Income ($240,000)