Adv accounting unit 3

For this assignment, use your Fundamentals of Advanced Accounting text to complete the following:

Problem 24 on page 135. This problem asks you to apply your knowledge of the three methods that an acquiring company can use in accounting for its investment in an acquiring company.

24. Foxx Corporation acquired all of Greenburg Company’s outstanding stock on January 1, 2016, for $600,000 cash. Greenburg’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.

Greenburg 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.

Account balances for the year ending December 31, 2018, follow. Credit balances are indicated by parentheses.

	Foxx	Greenburg
Revenues	$    (800,000)	$    (600,000)
Cost of goods sold	100,000	150,000
Depreciation expense	300,000	350,000
Investment income	(20,000)	–0–
Net income	$ (420,000)	$ (100,000)
Retained earnings, 1/1/18	$(1,100,000)	$ (320,000)
Net income	(420,000)	(100,000)
Dividends declared	120,000	20,000
Retained earnings, 12/31/18	$(1,400,000)	$ (400,000)
Current assets	$       300,000	$       100,000
Investment in subsidiary	600,000	–0–
Equipment (net)	900,000	600,000
Buildings (net)	800,000	400,000
Land	600,000	100,000
Total assets	$ 3,200,000	$ 1,200,000
Liabilities	$    (900,000)	$    (500,000)
Common stock	(900,000)	(300,000)
Retained earnings	(1,400,000)	(400,000)
Total liabilities and equity	$(3,200,000)	$(1,200,000)

Determine the December 31, 2018, consolidated balance for each of the following accounts:

Depreciation Expense Buildings

Dividends Declared Goodwill

Revenues Common Stock

Equipment

How does the parent’s choice of an accounting method for its investment affect the balances computed in requirement (a)?

Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?

If the parent company had used a different method of accounting for this investment, how could that method have been identified?

What would be Foxx’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.