Following are selected accounts for Mergaronite Company and Hill, Inc., as of De
ID: 2336829 • Letter: F
Question
Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2018. Several of Mergaronite’s accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period.
Assume that Mergaronite took over Hill on January 1, 2014, by issuing 8,000 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2014, Hill’s land was undervalued by $20,600, its buildings were overvalued by $31,200, and equipment was undervalued by $61,800. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $108,000 was developed internally by Hill and was to be written off over a 20-year period.
If the parent uses the equity method, what consolidation entries would be used on a 2018 worksheet (S,A,I,D,E) ?
Mergaronite Hill Revenues $ (584,000 ) $ (258,000 ) Cost of goods sold 276,000 92,000 Depreciation expense 110,000 54,000 Investment income NA NA Retained earnings, 1/1/18 (902,000 ) (582,000 ) Dividends declared 138,000 38,000 Current assets 196,000 660,000 Land 286,000 92,000 Buildings (net) 502,000 160,000 Equipment (net) 206,000 254,000 Liabilities (410,000 ) (318,000 ) Common stock (298,000 ) (40,000 ) Additional paid-in capital (54,000 ) (892,000 )Explanation / Answer
Answer:
Here we have to determine the consolidation entries where parent uses equity method,
In the book of Mergaronite,
Event Account Debit Credit Entry s Common stock(Hill) 40000 Additional paid in capitals 892000 Retained earnings 582000 To investment in Hill 1514000 Entry A Land account 20600 Equiment net account=(61800/5*(5-4)) 12360 To building net account(20600/10*(10-4)) 12360 Toi nvestment in hill 20600 Entry I Investment Income account(258000-92000-54000-4700 107300 To investment in hill 107300 Entry D Investment in hill account 54000 To dividened paid 54000 Entry I Amortization Expenses =94000/20 4700 Depreciation Expenses=12360-20600 8240 Building account 20600 Customer list 4700 To equipment list 12360