On January 1, 2021, Brooks Corporation exchanged $1,373,000 fair-value consideration for all of the outstanding...
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On January 1, 2021, Brooks Corporation exchanged $1,373,000 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,180,000. Chandlers individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $318,000 with an estimated remaining life of six years. The Chandler acquisition was Brookss only business combination for the year.
In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.
On December 31, 2021, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.
Brooks Corp.
Chandler Inc.
Income Statement
Revenues
$
(642,000
)
$
(559,000
)
Cost of goods sold
200,000
171,000
Gain on bargain purchase
(125,000
)
0
Depreciation and amortization
129,000
163,000
Equity earnings from Chandler
(172,000
)
0
Net income
$
(610,000
)
$
(225,000
)
Statement of Retained Earnings
Retained earnings, 1/1
$
(1,705,000
)
$
(880,000
)
Net income (above)
(610,000
)
(225,000
)
Dividends declared
250,000
30,000
Retained earnings, 12/31
$
(2,065,000
)
$
(1,075,000
)
Balance Sheet
Current assets
$
108,000
$
423,000
Investment in Chandler
1,640,000
0
Trademarks
102,000
237,000
Patented technology
313,000
460,000
Equipment
631,000
359,000
Total assets
$
2,794,000
$
1,479,000
Liabilities
$
(194,000
)
$
(104,000
)
Common stock
(535,000
)
(300,000
)
Retained earnings, 12/31
(2,065,000
)
(1,075,000
)
Total liabilities and equity
$
(2,794,000
)
$
(1,479,000
)
Note: Parentheses indicate a credit balance.
a. Determine the following account balances:
Gain on bargain purchase.
Earnings from Chandler.
Investment in Chandler.
b. Prepare a December 31, 2021, consolidated worksheet for Brooks and Chandler.
Answer & Explanation
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