70.2K

Verified Solution

Link Copied!

Pattern Corporation acquired all of Science Company's outstanding stock on January 1, 2016 for $600,000 cash. Science Company's
accounting records showed net assets on that date of $470,000 although equipment with a 10-year remaining life was undervalued
on the records by $90,000. Any recognized goodwill is considered to have an indefinite life. Science Company reports net income
in 2016 of $90,000 and $100,000 in 2017. The subsidiary declared dividends of $20,000 in each of these two years.
The trial balances for each company for the year ending December 31, 2018 are below:
	Unconsolidated		Entries
	Pattern	Science	C	S	A	I	D	E	Consolidated
Current assets	300,000	100,000							400,000
Equipment	900,000	600,000							1,500,000
Building	800,000	400,000							1,200,000
Land	600,000	100,000							700,000
Goodwill									-
Invest in sub	600,000		132,000						732,000
Liabilities	(900,000)	(500,000)							(1,400,000)
Common Stock	(900,000)	(300,000)							(1,200,000)
Dividends	120,000	20,000							140,000
Retained Earnings 1/1/18	(1,100,000)	(320,000)	(132,000)						(1,552,000)
Revenues	(800,000)	(500,000)							(1,300,000)
CGS	100,000	150,000							250,000
Depreciation	300,000	250,000							550,000
Investment Inc	(20,000)	-							(20,000)
Totals (should be zero in each column)	-	-	-	-	-	-	-	-	-
a. Complete the consolidating schedule above to consolidate the trial balances. Note that the first entry "C" has already been completed for you.
b. How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)?
c. Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?
d. If the parent company had used a different method of accounting for this investment, how could that method have been identified?
e. What would be Pattern's balance for retained earnings as of January 1, 2018, if each of the following methods had been in use?
Initial value method, Partial equity method, Equity method

Answer & Explanation Solved by verified expert

See Answer