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Following are separate financial statements of Mic...

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Following are separate financial statements of Michael Company and Aaron Company as of December 31, 2013 (credit balances are indicated by parentheses). Michael acquired all of Aaron's outstanding voting stock on January 1, 2009, by issuing 20,000 shares of its own $1 par common stock. On the acquisition date, Michael Company;s stock actively traded at $23.50 per share. Michael Company Revenues $(610,000) Cost of Goods Sold $270,000 Amortization Expense $115,000 Dividend Income $(5,000) Net Income ($230,000) Retained Earnings 1.1.13 $(880,000) Net Income (above) $(230,000) Dividends Paid $90,000 Retained earnings 12/31/13 $(1,020,000) Cash $110,000 Receivables $280,000 Inventory $560,000 Investment in Aaron Company $470,000 Copyrights $460,000 Royalty Agreements $920,000 Total Assets $2,900,000 Liabilities $(780,000) Preferred Stock $(300,000) Common Stock $(500,000) Additional Paid-In Capital $(300,000) Retained earnings 12/31/13 $(1,020,000) Total Liabilities and Equities $(2,900,000) Aaron Company Revenues $(370,000) Cost of Goods Sold $140,000 Amortization Expense $80,000 Dividend Income $0 Net Income ($150,000) Retained Earnings 1.1.13 $(490,000) Net Income (above) $(150,000) Dividends Paid $5,000 Retained earnings 12/31/13 $(635,000) Cash $15,000 Receivables $220,000 Inventory $280,000 Investment in Aaron Company $0 Copyrights $340,000 Royalty Agreements $380,000 Total Assets $1,235,000 Liabilities $(470,000) Preferred Stock $0 Common Stock $(100,000) Additional Paid-In Capital $(30,000) Retained earnings 12/31/13 $(635,000) Total Liabilities and Equities $(1,235,000) On the date of aquisitionm Aaron reported retained earnings of $230,000 and a total book value of $360,000. At that time, its royalty agreements were undervalued by $60,000. This intangible was assumed to have a six-year life with no residual value. Additionally, Aaron owned a trademark witg a fair value of $50,000 and a 10-year remaining life that was not reflected on its books. Using the attached excel templates: a) prepare a consolidation worksheet for these two companies as of December 31, 2013 b) Assuming that Michael applied the equity method to this investment, what account balances would differ on the parent's individual financial statements? c) Assuming that Michael applied the equity method to this investment, what changes would be necessary in the consolidation entries found on a December 31, 2013 worksheet? d) Assuming that Michael applied the equity method to this investment, what changes would be created in the consilidated figures to be reported by this combination?

 

Paper#1347 | Written in 18-Jul-2015

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