Following are selected accounts for Mergaronite Company and Hll, Inc., as of Dec
ID: 2332952 • Letter: F
Question
Following are selected accounts for Mergaronite Company and Hll, Inc., as of December 31, 2018. Several of Mergaronite's accounts have been omltted. Credit balances are Indicated by parentheses. DIvidends were declared and pald In the same perlod. Mergaronite Hill 5 (620,e00) $(254,000) Revenues Cost of goods sold Depreciation expense Investment income Retained earnings, 1/1/18 Dividends declared Current assets Land Buildings (net) Equipment (net) Liabilities Common stock Additional paid-in capital 114,900 60,00e NA (896,800) (59,000) 38,00e 664,00e 82,900 282,000 114,000 NA 136,000 188,800 298,800 528,800 192,900 13,90 254,90e (408,e00) (318,000) (304,800) (38,00) (44,00) (894,008) Assume that Mergaronlte took over Hll on January 1, 2014, by Issulng 6,000 shares of common stock having a par value of $10 per share but a falr value of $100 each. On January 1, 2014, Hll's land was undervalued by $19.400, Its bulldings were overvalued by $29,600, and equipment was undervalued by $61,000. The bulldings had a 10-year remaining life; the equipment had a 5-year remalning life. A customer list with an appralsed value of $94.000 was developed Internally by Hill and was to be written off over a 20- year perlod. a. Determine the December 31, 2018, consoldated totals for the following accounts: b. In requlrement (a), can the consolidated totals be detemined without knowing which method the parent used to account for the subsldiary? c. If the parent uses the equity method, what consolldation entrles would be used on a 2018 worksheet? Complete this question by entering your answers in the tabs below Required A Required B Required C Determine the December 31, 2018, consolidated totals for the following accounts: Totals 5 874,000 5 398,000 5 183,240 S 4.700 5 664,800 5 448,000 5 70,500 5 304,000 Revenues Cost of goods sold Customer list Common stock Additional paid-in capital 44,000 Required A Required B>Explanation / Answer
Answer A. Determine the December 31, 2018, consolidated totals for the following accounts: Particulars Amount Exaplanation Revenue ($874,000) $ 620000 + $ 254,000 (add Parent and subsidiary revenues Cost of Goods Sold $396,000 $ 282,000 + $ 114,000 (add Parent and subsidiary COGS) Depreciation Expense $183,240 $ 114,000 + $ 60,000 - $ 2960 + $ 12,200 Amotization Expense $4,700 $ 94,000 / 20 Building Net $635,200 $ 520,000 + $ 130,000 - $ 29,600 +($ 2,960 * 5year) Since building is overvalued $ 29,600 to be added and its depreciation for last 5 years to be deducted to arrive at correct value. Equipment Net $446,000 $ 192,000 + $ 254,000 At the end of 5th year the life of the equipment is exhousted, hence no need for amortization. Customer List $70,500 $ 94,000 - ( $ 4,700 * 5 ) Appraised value less amortization of last 5 years Common Stock ($304,000) Only consider parent's balance Additional Paid in Capital ($44,000) Only consider parent's balance Note : Fair value allocation and amortization Builiding = $ 29,600 / 10 years = ( $ 2960 ) Equipment = $ 61,000 / 5 years = $ 12,200 Customer List = $ 94,000 / 20 years = $ 4700 Total Amortization = $ 13,940 Answer B. Yes,The Method used by Parent is only important in determining the parent's separate account balances (which are given here or are not not needed ) or consolidation work sheet entries (which are not required in a) Answer C. If the parent uses the equity method, what consolidation entries would be used on a 2018 worksheet? In the Books of Mergaronite General Journal Entry No. Account Debit Credit Entry I Common Stock A/c Dr (Hill ) $38,000 Additional Paid in Capital A/c Dr (Hill ) $894,000 Retained Earnings A/c Dr. $590,000 To Investment In Hill A/c $1,522,000 (To eliminate begining stockholder's equity of the subsidiary) Entry II Land A/c Dr $19,400 Equipment net A/c Dr [$ 61,000 / 5 *(5-4 )] $12,200 Customer List net A/c Dr. [( $ 94000 / 20 *(20-4)] $75,200 To Building net A/c (29,600 / 10 * (10-4) $17,760 To Investment in Hill A/c $89,040 (To recognize unamortized allocation balances as on beginning of current year) Entry III Investment Income A/c Dr ($254000-$114000-$60000- $13940) $66,060 (Investment Income = Revenue - COGS - Depreciation - Amortization Expense for the year) To Investment in Hill $66,060 (To remove equity income recognized during year-equity method accrual [based on subsidiary's income] less amortization for the year] ) Entry IV Investment in Hill A/c Dr. $38,000 To Dividend Paid $38,000 (To remove intercompany dividend payments ) Entry V Amortization Expense A/c Dr. $4,700 Deprecition Expense A/c Dr.($ 12200 -$ 2960) $9,240 Building A/c Dr $2,960 To Customer List A/c $4,700 To Equipment A/c $12,200 (To recognize excess acquisition-date fair-value amortizations for the period)