Foxx Corporation acquired all of Greenburg Company’s outstandingstock on January 1, 2016, for $646,000 cash. Greenburg’s accountingrecords showed net assets on that date of $497,000, althoughequipment with a 10-year life was undervalued on the records by$66,000. Any recognized goodwill is considered to have anindefinite life.
Greenburg reports net income in 2016 of $119,000 and $100,500 in2017. The subsidiary declared dividends of $20,000 in each of thesetwo years.
Account balances for the year ending December 31, 2018, follow.Credit balances are indicated by parentheses.
| Foxx | | Greenburg |
| Revenues | $ | (868,000 | ) | | $ | (652,000 | ) |
| Cost of goods sold | | 108,500 | | | | 163,000 | |
| Depreciation expense | | 370,000 | | | | 406,000 | |
| Investment income | | (20,000 | ) | | | 0 | |
| Net income | $ | (409,500 | ) | | $ | (83,000 | ) |
| Retained earnings, 1/1/18 | $ | (1,246,000 | ) | | $ | (408,000 | ) |
| Net income | | (409,500 | ) | | | (83,000 | ) |
| Dividends declared | | 120,000 | | | | 20,000 | |
| Retained earnings, 12/31/18 | $ | (1,535,500 | ) | | $ | (471,000 | ) |
| Current assets | $ | 305,000 | | | $ | 118,000 | |
| Investment in subsidiary | | 646,000 | | | | 0 | |
| Equipment (net) | | 1,088,000 | | | | 700,000 | |
| Buildings (net) | | 968,000 | | | | 526,000 | |
| Land | | 674,000 | | | | 122,000 | |
| Total assets | $ | 3,681,000 | | | $ | 1,466,000 | |
| Liabilities | $ | (1,245,500 | ) | | $ | (695,000 | ) |
| Common stock | | (900,000 | ) | | | (300,000 | ) |
| Retained earnings | | (1,535,500 | ) | | | (471,000 | ) |
| Total liabilities and equity | $ | (3,681,000 | ) | | $ | (1,466,000 | ) |
|
Determine the December 31, 2018, consolidated balance for eachof the following accounts:
| |
| Depreciation Expense | Buildings |
| Dividends Declared | Goodwill |
| Revenues | Common Stock |
| Equipment | |
|
How does the parent's choice of an accounting method for itsinvestment affect the balances computed in requirement (a)?
Which method of accounting for this subsidiary is the parentactually using for internal reporting purposes?
Determine parent's investment income for 2018 under partialequity method and equity method.
What would be Foxx’s balance for retained earnings as of January1, 2018, if each of the following methods had been in use?
- Initial value method.
- Partial equity method.
- Equity method.
