Assume a parent company acquired 80% of the outstanding voting common stock of a subsidiary on January 1, 2018. On the acquisition date, the identifiable net assets of the subsidiary had fair values that approximated their recorded book values except for a patent, which had a fair value of $200,000 and no recorded book value. On the date of acquisition, the patent had five years of remaining useful life and the parent company amortizes its intangible assets using straight line amortization. During the year ended December 31, 2019, the subsidiary recorded sales to the parent in the amount of $240,000. On these sales, the subsidiary recorded pre-consolidation gross profits equal to 25%. Approximately 30% of this merchandise remains in the parent’s inventory at December 31, 2019. The following summarized pre-consolidation financial statements are for the parent and the subsidiary for the year ended December 31, 2019: Investor Investee Income statement: Revenues $4,800,000 $800,000 Income from Investee 209,600 0 Expenses (3,200,000) (480,000) Net income $1,809,600 $320,000 Retained earnings statement: BOY retained earnings $1,488,000 $80,000 Net income 1,809,600 320,000 Dividends declared (128,000) (80,000) EOY retained earnings $3,169,600 $320,000 Balance sheet: Current assets $1,600,000 $200,000 Investment in subsidiary 465,600 - Noncurrent assets 8,000,000 600,000 Total assets $10,065,600 $800,000 Liabilities $5,296,000 $320,000 Common stock & APIC 1,600,000 160,000 Retained earnings 3,169,600 320,000 Total liabilities & stockholders’ equity $10,065,600 $800,000 Based on this information determine the balance for Consolidated Revenues: $5,840,000 $4,800,000 $5,360,000 $5,600,000

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 30E

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Assume a parent company acquired 80% of the outstanding voting common stock of a subsidiary on January 1, 2018. On the acquisition date, the identifiable net assets of the subsidiary had fair values that approximated their recorded book values except for a patent, which had a fair value of $200,000 and no recorded book value. On the date of acquisition, the patent had five years of remaining useful life and the parent company amortizes its intangible assets using straight line amortization. During the year ended December 31, 2019, the subsidiary recorded sales to the parent in the amount of $240,000. On these sales, the subsidiary recorded pre-consolidation gross profits equal to 25%. Approximately 30% of this merchandise remains in the parent’s inventory at December 31, 2019. The following summarized pre-consolidation financial statements are for the parent and the subsidiary for the year ended December 31, 2019:

	Investor	Investee
Income statement:
Revenues	$4,800,000	$800,000
Income from Investee	209,600	0
Expenses	(3,200,000)	(480,000)
Net income	$1,809,600	$320,000
Retained earnings statement:
BOY retained earnings	$1,488,000	$80,000
Net income	1,809,600	320,000
Dividends declared	(128,000)	(80,000)
EOY retained earnings	$3,169,600	$320,000
Balance sheet:
Current assets	$1,600,000	$200,000
Investment in subsidiary	465,600	-
Noncurrent assets	8,000,000	600,000
Total assets	$10,065,600	$800,000
Liabilities	$5,296,000	$320,000
Common stock & APIC	1,600,000	160,000
Retained earnings	3,169,600	320,000
Total liabilities & stockholders’ equity	$10,065,600	$800,000

Based on this information determine the balance for Consolidated Revenues:

$5,840,000

$4,800,000

$5,360,000

$5,600,000

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