Foxx Corporstion acquired all of Greenburg Company\'s outstanding stock on Janua

Question

Foxx Corporstion acquired all of Greenburg Company's outstanding stock on January 1, 2016, for $646,000 cash. Greenburg's eccounting records showed net “sets on that date of $4g7,000, although equipment with 10-year life was undervalued on the records by $66,000. Any recognized goodwill is considered to have an indefinite life. Greenburg reports net income in 2016 of $119,000 and $100,500 in 2017. The subsidiary declared dividends of $20,000 in each of these two yeors. Account balances for the yeor ending December 31, 2018, follow. Credit balances are indicated by parentheses. Greenburg $ (868,080) (652,e80) 163,880 486,880 Foxx Revenues Cost of goods sold Depreciation expense Investment income 188,58e 378,88e (28,980) Net income $ (489,580) $ (83,980) Retained earnings, 1/1/18 Net income Dividends declared $(1,246,880) (488,880) (489, 588) (83,880) 28.880 120,8802 Retained earnings, 12/31/18 $(1,535,50) (471,880) Current assets Investment in subsidiary Equipment (net) Buildings (net) Land $ 385,08e 118,080 646,880 1,088,880 788.880 526,88e 968,880 674, 122,98e $ 3,681,880$1,466,980 S(1,245,500)(695,88 Total assets Liabilities Common stock Retained earnings (388,888) 1.535,580) (471,988) Total liabilities and equity $(3,681,880) $(1,466,880) (9a8,888) a. Determine the December 31, 2018, c balance for esch of the following accounts Depreciation Expense Dividends Declared Revenues Equipment Buildings Goodwi11 Common Stock b. How does the parent's choice of an accounting method for its investment affect the balances computed in requirement (a)? c. Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes? d. Determine parent's investment income for 2018 under partial equity method and equity method. e. What would be Foxox's balance for retained esrnings os of Janusry 1, 2018, if each of the following methods had been in use? Initial value method. Partial equity method. Equity method. Complete this question by entering your answers in the tabs below. Req A Req B and Req D and E d. Determine parent's investment income for 2018 under partial equity methad and equity method. use? e. What would be Foxx's balance for retained earnings as of January 1, 2018, if each of the following methods had been in Retalned Initial value method Partial equity method Equity mehod $ 1,246,000 1,425,500 $ 1,412,300

Explanation / Answer

Part D

If the partial equity method had been utilized, the investment income account would have shown only an equity accrual of $100,500. If the equity method had been applied, the Investment Income account would have included both the equity accrual of $100,500 and excess amortizations of $6600 (66000/10) for a balance of $93900

Part E

Cost Method Foxxs Retained Earnings 1/1/18

Foxxs 1/1/18 balance (cost method was employed) $1,246,000

Partial Equity Method Foxxs Retained Earnings 1/1/18

Foxxs 1/1/18 balance (cost method) $1,246,000

2016 equity accrual for Greenburg 119,000

2016 equity accrual for Greenburg 100,500

Foxxs 1/1/18 R/E $1,465,500

Equity Method Foxxs Retained Earnings 1/1/18

Foxxs 1/1/18 balance (cost method) $1,246,000

2016 equity accrual for Greenburg 119000

2016 excess cost amortization (6600)

2017 equity accrual for Greenburg 100,500

2017 excess cost amortization (6600)

Foxxs 1/1/18 R/E $1,412,300

Therefore,

D. Investment income E. Retained earnings Initial value method 1246000 Parity equity method 100500 1465500 Equity method 93900 1412300

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