On January 1, 2017, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing,...
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On January 1, 2017, Corgan Company acquired 70 percent of theoutstanding voting stock of Smashing, Inc., for a total of$1,085,000 in cash and other consideration. At the acquisitiondate, Smashing had common stock of $820,000, retained earnings of$370,000, and a noncontrolling interest fair value of $465,000.Corgan attributed the excess of fair value over Smashing's bookvalue to various covenants with a 20-year remaining life. Corganuses the equity method to account for its investment inSmashing.
During the next two years, Smashing reported the following:
Net Income Dividends Declared Inventory Purchases from Corgan 2017 $ 270,000 $ 47,000 $ 220,000 2018 250,000 57,000 240,000
Corgan sells inventory to Smashing using a 60 percent markup oncost. At the end of 2017 and 2018, 50 percent of the current yearpurchases remain in Smashing's inventory.
- Compute the equity method balance in Corgan's Investment inSmashing, Inc., account as of December 31, 2018.
- Prepare the worksheet adjustments for the December 31, 2018,consolidation of Corgan and Smashing.
On January 1, 2017, Corgan Company acquired 70 percent of theoutstanding voting stock of Smashing, Inc., for a total of$1,085,000 in cash and other consideration. At the acquisitiondate, Smashing had common stock of $820,000, retained earnings of$370,000, and a noncontrolling interest fair value of $465,000.Corgan attributed the excess of fair value over Smashing's bookvalue to various covenants with a 20-year remaining life. Corganuses the equity method to account for its investment inSmashing.
During the next two years, Smashing reported the following:
| Net Income | Dividends Declared | Inventory Purchases from Corgan | |||||||
| 2017 | $ | 270,000 | $ | 47,000 | $ | 220,000 | |||
| 2018 | 250,000 | 57,000 | 240,000 | ||||||
Corgan sells inventory to Smashing using a 60 percent markup oncost. At the end of 2017 and 2018, 50 percent of the current yearpurchases remain in Smashing's inventory.
- Compute the equity method balance in Corgan's Investment inSmashing, Inc., account as of December 31, 2018.
- Prepare the worksheet adjustments for the December 31, 2018,consolidation of Corgan and Smashing.
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