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4-32 Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2009, for $680,000 cash. At the acquisition date, Sam's total fair value was assessed at $850,000 although Sam's book value was only $600,000. Also, several individual items on Sam's financial records had fair values that differed from their book values as follows:
Book Value Fair Value
Land…………………………………………… 60,000 225,000
Building and equipment
(10-year remaining life) …… 275,000 250,000
Copyright (20-year life)……………………. 100,000 200,000
Notes payable (due in 8 years)………… (130,000) (120,000)
For internal reporting purposes, Father, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2009, for both companies. Using the acquisition method, determine consolidated balances for this business combination (through either individual computations or the use of a worksheet).
Father Sam
Revenues………………………………………. (1,360,000) (540,000)
Cost of Goods sold…………………………. 700,000 385,000
Depreciation expense…………………….. 260,000 10,000
Amortization expense…………………….. -0- 5,000
Interest expense…………………………….. 44,000 5,000
Equity in income of Sam…………………. (105,000) -0-
Net income………………………… (461,000) (135,000)
Retained earnings, 1/1/09……………… (1,265,000) (440,000)
Net income (above)………………………. (461,000) (135,000)
Dividends paid………………………………. 260,000 65,000
Retained earnings, 12/31/09………… (1,466,000) (510,000)
Current assets……………………………….. 965,000 528,000
Investment in Sam…………………………… 733,000 -0-
Land………………………………………………….. 292,000 60,000
Buildings and Equipment (Net)……….. 877,000 265,000
Copyright……………………………………….. -0- 95,000
Total assets………………………… 2,867,000 948,000
Accounts payable…………………………… (191,000) (148,00)
Notes payable……………………………….. (460,000) (130,000)
Common stock…………………………….. (300,000) (100,000)
Additional Paid-in-capital………………… (450,000) (60,000)
Retained earnings (above)………………… (1,466,000) (510,000)
Total liabilities and equities… (2,867,000) (948,000)