Adams, Inc., ocquires Clay Corporation on January 1, 2017, in exchange for $631,

Q: Adams, Inc., ocquires Clay Corporation on January 1, 2017, in exchange for $631,

(A) Investment Income Investment in Clay Equity Method $64600 $728100 Initial Value Method $8000 $631400 Explanations :- Equity Method :- Investment Income = $69600 – $5000 = $64600 Investment in clay :- Equipment 495600 (+) Current Asset 334900 (-) Liabilities 167000 (+) Investment Income 64600 728100 Investment Income Investment in Clay Equity Method $64600 $728100 Initial Value Method $8000 $631400

ID: 2332951 • Letter: A

Question

Adams, Inc., ocquires Clay Corporation on January 1, 2017, in exchange for $631,400 cash. Immediately sfter the acquisition, the two companies have the following account bslances. Clay's equipment (with a five-year remaining life) is actually worth $495,600. Credit balances ore indicated by parentheses. Adams clay Current assets 488,000 283,000 Investment in Clay Equipment Liabilities Common stock Retained earnings, 1/1/17 631,480 685,680 438,980 (278,880) (167,880) (358,880) (158,880) (1,097,080) (484,980) In 2017, Clay earns a net income of $69,600 and declares and pays a $5,000 cash dividend. In 2017, Adams reports net income from its own operstions (exclusive of any income from Clay) of $196,000 and declares no dividends. At the end of 2018, selected account balances for the two companies ore as Adams Cla Revenues Expenses Investment income (542,080) $(424,808) 318,808 392,95e Not Not 468,608) Retained earnings, 1/1/18 Dividends declared Common stock Current assets 8,808 (358,880) (158,808) 778,880 334,908 Investment in Clay ven 480, 599,68e Liabilities (283,680) (118,608) a. What are the December 31, 2018, Investment Income and Investment in Clay occount balances assuming Adams uses the Equity method. Initial value method. b. How does the parent's internal investment accounting method choice affect the amount reported for expenses in its December 31, 2018, consolidated income statement? c. How does the parent's internal investment accounting method choice affect the amount reported for equipment in its December 31, 2018, consolidated balance sheet? d. What is Adams's January 1, 2018, Retained Eamings account balance assuming Adams accounts for its investment in Clay using the Equity value method. Initial value method. e. What worksheet adjustment to Adams's Jonusry 1, 2018, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method? f. Prepare the worksheet entry to eliminate Clay's stockholders' equity g- What is consolidated net income for 2018? Complete this question by entering your answers in the tabs below. Req A Req B to D Req E and F Req G What are the December 31, 2018, Investment Income and Investment in Qay account balances assuming Adams uses the: Equity mehod Initial value method 8,000S 631, c Req A Req B to D >

Explanation / Answer

(A)

Investment Income

Investment in Clay

Equity Method

$64600

$728100

Initial Value Method

$8000

$631400

Explanations :-

Equity Method :-

Investment Income = $69600 – $5000 = $64600

Investment in clay :-

Equipment

495600

(+) Current Asset

334900

(-) Liabilities

167000

(+) Investment Income

64600

728100