Patrick Corporation acquired 100 percent of OBrien Companys outstanding common stock on January 1, for...
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Accounting
Patrick Corporation acquired 100 percent of OBrien Companys outstanding common stock on January 1, for $583,900 in cash. OBrien reported net assets with a carrying amount of $359,000 at that time. Some of OBriens assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows:
Book Values
Fair Values
Trademarks (indefinite life)
$
69,000
$
176,000
Customer relationships (5-year remaining life)
0
90,900
Equipment (10-year remaining life)
346,000
293,200
Any goodwill is considered to have an indefinite life with no impairment charges during the year.
Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. OBrien declared and paid dividends in the same period. Credit balances are indicated by parentheses.
Patrick
O'Brien
Revenues
$
(1,177,500
)
$
(800,000
)
Cost of goods sold
314,000
368,000
Depreciation expense
92,100
89,700
Amortization expense
42,600
0
Income from O'Brien
(329,400
)
0
Net income
$
(1,058,200
)
$
(342,300
)
Retained earnings 1/1
$
(736,000
)
$
(293,000
)
Net income
(1,058,200
)
(342,300
)
Dividends declared
156,000
94,000
Retained earnings 12/31
$
(1,638,200
)
$
(541,300
)
Cash
$
267,000
$
136,000
Receivables
416,000
66,300
Inventory
184,000
167,000
Investment in O'Brien
853,300
0
Trademarks
568,000
65,700
Customer relationships
0
0
Equipment (net)
1,120,000
349,000
Goodwill
0
0
Total assets
$
3,408,300
$
784,000
Liabilities
$
(1,370,100
)
$
(142,700
)
Common stock
(400,000
)
(100,000
)
Retained earnings 12/31
(1,638,200
)
(541,300
)
Total liabilities and equity
$
(3,408,300
)
$
(784,000
)
Which investment method did Patrick use to compute the $329,400 income from O'Brien?
Determine the totals to be reported for this business combination for the year ending December 31.
Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and OBrien for the year ending December 31.
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