Haynes, Inc., obtained 100 percent of Turner Companyâs common stock on January 1, 2014, by issuing 11,300 shares of $10 par value common stock. Haynesâs shares had a $15 per share fair value. On that date, Turner reported a net book value of $126,000. However, its equipment (with a five-year remaining life) was undervalued by $8,200 in the companyâs accounting records. Also, Turner had developed a customer list with an assessed value of $35,300, although no value had been recorded on Turnerâs books. The customer list had an estimated remaining useful life of 10 years.
The following figures come from the individual accounting records of these two companies as of December 31, 2014:
Haynes Turner Revenues $ (648,000 ) $ (360,000 ) Expenses 486,000 173,000 Investment income Not given 0 Dividends declared 80,000 90,000
The following figures come from the individual accounting records of these two companies as of December 31, 2015:
Haynes Turner Revenues $ (845,000 ) $ (412,750 ) Expenses 515,800 207,200 Investment income Not given 0 Dividends declared 90,000 80,000 Equipment 512,000 367,000
a. What balance does Haynesâs Investment in Turner account show on December 31, 2015, when the equity method is applied?
b. What is the consolidated net income for the year ending December 31, 2015?
c-1. What is the consolidated equipment balance as of December 31, 2015?
c-2. Would this answer be affected by the investment method applied by the parent?
Yes No
d. Prepare entry *C for each of the following methods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1. Prepare entry *C if the parent used the initial value method.
December 31, 2015
2. Prepare entry *C if the parent used the partial equity method.
December 31, 2015
3. Prepare entry *C if the parent used the equity method.
December 31, 2015
| Haynes, Inc., obtained 100 percent of Turner Companyâs common stock on January 1, 2014, by issuing 11,300 shares of $10 par value common stock. Haynesâs shares had a $15 per share fair value. On that date, Turner reported a net book value of $126,000. However, its equipment (with a five-year remaining life) was undervalued by $8,200 in the companyâs accounting records. Also, Turner had developed a customer list with an assessed value of $35,300, although no value had been recorded on Turnerâs books. The customer list had an estimated remaining useful life of 10 years. |
| The following figures come from the individual accounting records of these two companies as of December 31, 2014: |
| Haynes | Turner | |||||||||
| Revenues | $ | (648,000 | ) | $ | (360,000 | ) | ||||
| Expenses | 486,000 | 173,000 | ||||||||
| Investment income | Not given | 0 | ||||||||
| Dividends declared | 80,000 | 90,000 | ||||||||
| The following figures come from the individual accounting records of these two companies as of December 31, 2015: |
| Haynes | Turner | |||||||||
| Revenues | $ | (845,000 | ) | $ | (412,750 | ) | ||||
| Expenses | 515,800 | 207,200 | ||||||||
| Investment income | Not given | 0 | ||||||||
| Dividends declared | 90,000 | 80,000 | ||||||||
| Equipment | 512,000 | 367,000 | ||||||||
| a. | What balance does Haynesâs Investment in Turner account show on December 31, 2015, when the equity method is applied? |
| b. | What is the consolidated net income for the year ending December 31, 2015? |
| c-1. | What is the consolidated equipment balance as of December 31, 2015? |
| c-2. | Would this answer be affected by the investment method applied by the parent? | ||||
|
| d. | Prepare entry *C for each of the following methods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
1. Prepare entry *C if the parent used the initial value method.
December 31, 2015
2. Prepare entry *C if the parent used the partial equity method.
December 31, 2015
3. Prepare entry *C if the parent used the equity method.
December 31, 2015
Related questions
| On January 1, 2014, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,428,700 in cash. The price paid was proportionate to Sellingerâs total fair value, although at the acquisition date, Sellinger had a total book value of $1,710,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellingerâs accounting records by $321,000. On January 1, 2015, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $548,125 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger. |
| During the two years following the acquisition, Sellinger reported the following net income and dividends: |
| 2014 | 2015 | |
| Net income | $ 495,000 | $ 615,000 |
| Dividends | 190,000 | 220,000 |
| a. | Prepare Palkaâs journal entry to record its January 1, 2015, acquisition of an additional 25 percent ownership of Sellinger Company shares. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
| b. | Prepare a schedule showing Palkaâs December 31, 2015, equity method balance for its Investment in Sellinger account. (Amounts to be deducted should be indicated with a minus sign.) |
For Part A I know the amount of Cash in the trransaction should be $548,125
However I am unsure of the amount to debit for the investment in S and what to credit for the Additional paid-in capital. I thought it would be 70% of the book value, but was wrong.
