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On January 1, 2019, Triple A Company acquired Bodyguard Companys outstanding common stock for $842,000 in cash. As of that date the following information was acquired from Bodyguard, the subsidiary of Triple A:

Building (12-year life) was undervalued on its balance sheet by $72,000

Equipment (10-year life) was undervalued by $10,000

Licensing agreement (20-year life) unrecorded, assessed at $40,000

Book value as at January 1, 2019 was $720,000

Net income reported during 2019 was $100,000

Dividends paid in 2019 $30,000

Earnings by Bodyguard (subsidiary) in 2020 $120,000

Dividends distributed by Bodyguard in 2020 $20,000

As of December 31, 2021Triple A and Bodyguard reported the following for the year:

	Triple A December 31, 2021		Bodyguard December 31, 2021
	Debit	Credit	Debit	Credit
Buildings	$1,540,000		$460,000
Cash and receivables	50,000		90,000
Common stock		$900,000		$400,000
Dividends paid	70,000		10,000
Equipment	280,000		200,000
Cost of goods sold	500,000		120,000
Depreciation expense	100,000		60,000
Inventory	280,000		260,000
Land	330,000		250,000
Liabilities		480,000		260,000
Retained earnings 1/1/21		1,360,000		490,000
Revenues		900,000		300,000

Required:

a. If Triple A applies the equity method, what is its investment account balance as of December 31, 2021?

b. If Triple A applies the initial value method, what is its investment account balance as of December 31, 2021?

c. Regardless of the accounting method in use by Triple A, what are the consolidated totals as of December 31, 2021, for each of the following accounts?

Buildings Revenues

Equipment Net income

Land Investment in Bodyguard

Depreciation expense Dividends paid

Amortization expense Cost of goods sold

d. Prepare the worksheet entries required on December 31, 2021, to consolidate the financial records of these two companies. Assume that Triple A applied the equity method to its investment account.

e. Discuss how would the worksheet entries in requirement (d) change if Triple A used the initial value method? Do not record the entries.

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