Following are separate Mnanclal statements of Michael Company and Aaron Company
ID: 2332989 • Letter: F
Question
Following are separate Mnanclal statements of Michael Company and Aaron Company as of December 31, 2018 (credit balances Indlcated by parentheses) Michael acquired a of Aaron's outstanding voting stock on January 1, 2014, by Issulng 20,000 shares of its own $1 par common stock. On the acquisltlon date, Michael Company's stock actively traded at $30 per share. Michael Company Aaron Company 12/31/18 12/31/18 Revenues Cost of goods sold Amortization expense Dividend incone $ (686,580) $(505,588) 287,75e 88,588 137,480 (S,890) $(245,858) (217,258) $ (926,80) $(659,888) (217,258) Net income Retained earnings, 1/1/18 Net incone (above) Dividends declared (245,858) 98,890 S,888 Retained earnings, 12/31/18 $(1,881,858) $ (871,258) Cash Receivables Inventory Investment in Aaron Conpany Copyrights Royalty agreements 288,808 446 , 583,808 598,880 499,890 24.2a 388,88e 292,888 346,888 937 898 448-888 $1,418,28e $ 3,263,808 $(1,881,158) Total assets Liabilities Preferred stock Connon stock Additional paid-in capital Retained earnings, 12/31/18 $ (488,958) (386,808) (See,eee (308,e00) (188,888) (38,868) 1.881,858)( 871,256 Total 1iabilities and equity $(3,263,800) $(1,418,208) On the date of acquiion, Aaron reported retalned eamings of $350,000 and a total book value of $480,000. At that time, Its royaity agreements were undervalued by $60,000. This Intanglble was assumed to have a six-year remalning Ife wtth no residual value Addltionally, Aaron owned a trademark with a falr value of $50,000 and a 10-year remalning Ife that was not reflected on its books. Aaron declared and pald aMdends In the same perlod. a. Using the preceding Information, prepare a consolldation worksheet for these two companles as of December 31, 2018. b. Assuming that Michael applled the equity method to thls Investment, what account balances would differ on the parent's IndlMaual nanclal statements? Complete this question by entering your answers in the tabs below. Required A Required B using the preceding information" prepare consociation worksheet for these two companies as of December 31, 2018. For accounts where multiple consolidation ntries are required, combine all debit entries into one amount and nter this amont in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts i the Debit and Credit columns should be ntered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) MICHAEL COMPANY AND CON BOLIDATED 3UBOIARY For Year Ending December 31, 2015 Concolldation Entriet Totalt of goods sold 207,750 Amortizaion Dvidend income (5.000) S 1950,100 Retained eamings Retaned cearnings, 1/1 (Aaron) Net ncome (abov Dividends decared 926.000) 659,000 59,000 245 Retained eamings, 12/31 1081.85O)S (871,250 1,950,100 8000$Explanation / Answer
Micheal Co Aaron Co Consolidated Revenues 686500 505500 1192000 Cost of Goods Sold -308250 -207750 -516000 Amortization expenses -137400 -80500 -217900 Dividend Income 5000 Net Income 245850 217250 458100 Retained Earnings 1/1/18 926000 659000 1585000 Net income 245850 217250 458100 Dividends Declared -90000 -5000 Retained Earnings 12/31/18 1081850 871250 1603100 Combined Retained Would Exclude Opening RE balance at Acquisition 1081850+871250-350000 Cash 208000 24200 232200 Receivables 446000 308000 754000 Goodwill 10000 Trademarks 25000 Inventory 583000 292000 875000 Investment In aaron Company 590000 Copyrights 499000 346000 845000 Royalty Agreements 937000 440000 1387000 Total Assets 3263000 1410200 4128200 Liabilities 1081150 408950 1490100 Preferred Stock 300000 300000 Common Stock 500000 100000 500000 Additional Paid In Capital 300000 30000 310000 Retained Earnings 12/31/18 1081850 871250 1528100 Total Liabilities and Equity 3263000 1410200 4128200 Goodwill Computation Purchase Consideration 30*20000shares 600000 Increase Investment in Aaron and Paid in Capital by 10000 Less - Net Value of assets Book Value -480000 Royalty Agrteements -60000 Current Value =10000 After 5 years depreciation Trademark -50000 Current Value = 25000 after 5 years out of 10years depreciation Goodwill 10000