oa 42. Determining ending consolidated balances in the fourth year following the

Question

oa 42. Determining ending consolidated balances in the fourth year following the acquisition-Cost method Assume a parent company acquired a subsidiary on January 1, 2013, for $1,760,000. The purchase price was $1,200,000 in excess of the subsidiary's $560,000 book value of Stockholders' Equity on the acquisition date. Of this excess purchase price, $500,000 was assigned to Property, plant and equipment with a remaining economic useful life of 16 years, $400,000 was assigned to an unrecorded patent with a remaining economic useful life of 8 years, and $300,000 was assigned to Goodwill. On the acquisi- tion date, the subsidiary reported retained earnings equal to $312,500. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, are as follows:

Explanation / Answer

Purchase price in excess of book value $1,200,000 No of Yrs Amortization Allocation to Property, plant and equipment $500,000 16 $31,250 Allocation to Patent $400,000 8 $50,000 Goodwill $300,000 a Sales ($7562500+1650000) $ 9212500 b Investment Income $ 34000 c Operating Expenses (1134400+429000-31250-50000) $ 1482150 d Inventories (2933500+491500) $ 3425000 e Equity Investment $ 0 f Property, Plant and equipment (10627200+909500+500000-31250) $ 12005450 g Patent (400000-50000) $ 350000 h Goodwill $ 300000 i Common Stock $ 704600 j Retained Earnings $ 6052100

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