Finance

  

 McKinney Enterprises acquired Pottsboro, Inc. as a wholly-owned subsidiary on January 1, 2019 paying $1,750,000. The $440,000 excess of cost over book value of Pottsboro’s net assets was partly attributable to a patent undervalued by $210,000. The patent has a 10-year life. The remaining excess is considered goodwill. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The separate financial statements of the two companies for 2022 are presented below. Neither company issued additional shares after the acquisition Pottsboro by McKinney. 

  

McKinney   Enterprises

Pottsboro,   Inc.

 

Sales revenue

$3,100,000   

$440,000   

 

Cost of goods sold

-1,580,000

-252,000

 

Gross profit

1,520,000

188,000

 

Operating expenses

-485,000

-68,000

 

Dividend income

42,000

0

 

Net Income

$1,077,000 

$120,000 

 

 

Retained Earnings,   1/1/22

$1,700,000   

$750,000   

 

Net income

1,077,000

120,000

 

Dividends

-65,000

-42,000

 

Retained Earnings,   12/31/22

$2,712,000 

$828,000 

 

 

Cash and   receivables

$535,000   

$501,000   

 

Inventory

758,000

840,000

 

Equity investment 

1,750,000

 

Property, plant   & equipment (Net) 

4,596,000

1,205,480

 

Total Assets

$7,639,000 

$2,546,480 

 

 

Accounts payable

$265,000   

$182,430   

 

Accrued liabilities

458,000

272,390

 

Notes payable

780,000

603,500

 

Common stock

460,000

204,540

 

Additional paid-in   capital

2,964,000

455,620

 

Retained Earnings, 12/31/22

2,712,000

828,000

 

Total Liabilities   and Equities

$7,639,000   

$2,546,480   

Required:

a.  What was Pottsboro, Inc.’s retained earnings balance on the acquisition date?

b.  Prepare all necessary consolidation entries for 2022 consolidated financial statements.