Pattern Corporation acquired all of Science Company's outstanding stock on January 1, 2016 for $600,000 cash. Science Company's accounting records showed net assets on that date of $470,000 although equipment with a 10-year remaining life was undervalued on the records by $90,000. Any recognized goodwill is considered to have an indefinite life. Science Company reports net income in 2016 of $90,000 and $100,000 in 2017. The subsidiary declared dividends of $20,000 in each of these two years. The trial balances for each company for the year ending December 31, 2018 are below: Unconsolidated Entries Pattern Science C S A I D E Consolidated Current assets 300,000 100,000 400,000 Equipment 900,000 600,000 1,500,000 Building 800,000 400,000 1,200,000 Land 600,000 100,000 700,000 Goodwill - Invest in sub 600,000 132,000 732,000 Liabilities (900,000) (500,000) (1,400,000) Common Stock (900,000) (300,000) (1,200,000) Dividends 120,000 20,000 140,000 Retained Earnings 1/1/18 (1,100,000) (320,000) (132,000) (1,552,000) Revenues (800,000) (500,000) (1,300,000) CGS 100,000 150,000 250,000 Depreciation 300,000 250,000 550,000 Investment Inc (20,000) - (20,000) Totals (should be zero in each column) - - - - - - - - - a. Complete the consolidating schedule above to consolidate the trial balances. Note that the first entry "C" has already been completed for you. b. How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)? c. Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes? d. If the parent company had used a different method of accounting for this investment, how could that method have been identified? e. What would be Pattern's balance for retained earnings as of January 1, 2018, if each of the following methods had been in use? Initial value method, Partial equity method, Equity method
