On January 1, 2014, Corgan Company acquired 70 percent of the outstanding voting

Question

On January 1, 2014, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,330,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $890,000, retained earnings of $440,000, and a noncontrolling interest fair value of $570,000. Corgan attributed the excess of fair value over Smashing’s book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing.

     Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2014 and 2015, 30 percent of the current year purchases remain in Smashing’s inventory.

Compute the equity method balance in Corgan’s Investment in Smashing, Inc., account as of December 31, 2015.

      

Prepare the worksheet adjustments for the December 31, 2015, consolidation of Corgan and Smashing.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

On January 1, 2014, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,330,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $890,000, retained earnings of $440,000, and a noncontrolling interest fair value of $570,000. Corgan attributed the excess of fair value over Smashing’s book value to various covenants with a 20-year life. Corgan uses the equity method to account for its investment in Smashing.

     During the next two years, Smashing reported the following:

Explanation / Answer

a.

b.

$ Consideration transferred by Corgan 1,330,000 Noncontrolling interest fair value 570,000 Smashing’s acquisition-date fair value 1,900,000 Book value of subsidiary            1,330,000 Excess fair over book value 570,000 Excess assigned to covenants 570,000 Useful life in years 20 Annual amortization           28,500 2014 Cost (100,000/160%)         181,250 100 Inter company Gross Profit         108,750 60 SP         290,000 160 Ending Inventory Gross Profit ($108,750*30%)           32,625 2015 Cost (100,000/160%)         193,750 Inter company Gross Profit         116,250 SP         310,000 Ending Inventory Gross Profit ($116,250*30%)           34,875

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