Chapter_03_XLSol - Student Name Instructor Class...

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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 03-24 Part a. Michael Company and Aaron Company - Fair Value allocation and Annual Amortization Aaron fair value $470,000 Book value of subsidiary (360,000) Excess fair over book value $110,000 Correct! Annual Assigned to specific accounts Life Excess based on fair market value: (years) Amortizations Royalty agreements $60,000 6 $10,000 Trademark 50,000 10 5,000 Total $110,000 $15,000 Correct! Correct! -Conversion to initial value method for years prior to 2013 Aaron retained earnings, 1/1/13 $490,000 Retained earnings at date of purchase (230,000) Increase since date of purchase $260,000 Excess amortization expenses (60,000) Conversion to equity method for years $200,000 prior to 2013 Correct!
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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 03-24 Part a. Consolidated Worksheet MICHAEL COMPANY AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2013 Michael Aaron Consolidation Entries Consolidated Accounts Company Company Debit Credit Totals Income Statement Revenues $(610,000) $(370,000) $(980,000) Correct! Cost of goods sold 270,000 140,000 410,000 Correct! Amortization expense 115,000 80,000 [E] 15,000 210,000 Correct! Dividend income (5,000) - [ I ] 5,000 - Correct! Net income $(230,000) $(150,000) $(360,000) Correct! Statement of Retained Earnings Retained earnings, 1/1 $(880,000) [C] 200,000 $(1,080,000) Correct! $(490,000) [S] 490,000 - Correct! Net income (230,000) (150,000) (360,000) Correct! Dividends paid 90,000 5,000 [ I ] 5,000 90,000 Correct! Retained earnings, 12/31 $(1,020,000) $(635,000) $(1,350,000) Correct! Balance Sheet Cash $110,000 $15,000 $125,000 Correct! Receivables 380,000 220,000 600,000 Correct! Inventory 560,000 280,000 840,000 Correct! Investment in Aaron Co. 470,000 - [C] 200,000 [S] 620,000 - Correct! [A] 50,000 Copyrights 460,000 340,000 800,000 Correct! Royalty agreements 920,000 380,000 [A] 20,000 [E] 10,000 1,310,000 Correct! Trademark - - [A] 30,000 [E] 5,000 25,000 Correct! Total assets $2,900,000 $1,235,000 $3,700,000 Correct! Liabilities (780,000) (470,000) (1,250,000) Correct! Preferred stock (300,000) - (300,000) Correct! Common stock (500,000) (100,000) [S] 100,000 (500,000) Correct! Additional paid-in capital (300,000) (30,000) [S] 30,000 (300,000) Correct! Retained earnings, 12/31 (1,020,000) (635,000) (1,350,000) Correct! Total liabilities and equity $(2,900,000) $(1,235,000) $(3,700,000) Correct! Parentheses indicate a credit balance.
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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 03-24 Part b. Equity method - What account balances would be altered on Michael's financial statements? New Account Balance Equity in Earnings of Aaron $135,000 Correct! Retained earnings, 1/1/13 1,080,000 Correct! Investment in Aaron 800,000 Correct! Part c. Equity method - What changes would be necessary in the consolidation entries in the December 31, 2013 Consolidation Worksheet? No Entry *C is needed on the worksheet if the equity method is applied. Both the investment account as well as the beginning retained earnings would be stated appropriately. Entry I would have been used to eliminate the $135,000 Equity in Earnings of Aaron from the parent's income statement and from the "Investment in Aaron Co." account. Entry D would eliminate the $5,000 current year dividend from "Dividends Paid" and the "Investment in Aaron" account balances. Part d. Equity method - What changes would be created in the consolidation figures to be reported by this combination.
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