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

Question

Foxx Corporation acquired all of Greenburg Company's outstanding stock on January 1, 2016, for $858,000 cash. Greenburg's accounting records showed net assets on that date of $717,000, although equipment with a 10-year life was undervalued on the records by $60,000. Any recognized goodwill is considered to have an indefinite life. Greenburg reports net income in 2016 of $113,000 and $148,500 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. (828,000) 103,500 424,000 Cost of goods sold Depreciation expense Investment incone (968,000) 242,000 358,000 Net incone $ 320,500) 368,000) Retained earnings, 1/1/18 Net income $(1,234,000) 339,000) 368,000) 20,00020,000 320,500) Dividends declared $1,434,500) $ 302,000 858,000 1,048,000 810,000 Retained earnings,12/31/18 687,000) $ 159,000 Current assets Investnent in subsidiary Equipment (net) Buildings (net) 692,000 592,000 704 000117,000 Total assets s3,722,0001.560.00 Liabilities Comnon stock Retained earnings $(1,387 500)(573,000) 300,000) (900,000) (1.434,500687,000) $(3,722,000) Total 1iabilities and equity 1,560,000)

Explanation / Answer

Consolidated Balances a) Depreciation on Equipment Equipment (Undervalued) $60,000 Useful life 10 Years Depreciation on Equipment=($60000/10) $6,000.00 Depreciation Expense: Foxx Company $424,000 Greenburg ($242000+$6000) $248,000 Depreciation Expense total: $672,000 Dividend declared: Foxx $120,000 Dividend declared total: $120,000 Note: Dividend declared by Greenburg are eliminated as intrcompany transaction. Revenue: Foxx $828,000 Greenburg $968,000 Total Revenue $1,796,000 Equipment: Foxx $1,048,000 Greenburg $692,000 Add: Undervalued $60,000 Less: Additional Depreciation for 3 Years (2016 to 2018)=($6000*3) $18,000 Total Value of Equipment $1,782,000 Building: Foxx $810,000 Greenburg $592,000 Total value of Building $1,402,000 Goodwill: Consideration transferred $858,000 Less:Book Value $717,000 Less: Equipment undervalued $60,000 Goodwill: $81,000 Common Stock: Foxx $900,000 Total value of common stock $900,000 b) The parent's choice of accounting method has no impact on the consolidation totals. c ) For internal reporting purpose parent only uses initial value method for subsidiary. The parents' investment in the subsidary account still remains the same as $858,000. d) If Partial Equity Method Used Equity Accrual $368,000 In case of Equity Method Use Equity Accrual $368,000 Less: Amortization of Depreciation $6,000 Net Income $362,000 e) Intial Value Method Foxx Retained Earnings Jan 1 2018= $1,234,000 Partial Equity Value Method Foxx Retained Earnings as per initial value method $1,234,000 Add: Net Equity Accrual=(Net Income of 2016-Dividend declared)=($113,500-$20,000) $93,500 Add: Net Equity Accrual 2017=(Net Income of 2017-Dividend declared)=($148500-$20000) $128,500 Foxx Balance of Retained Earnings Jan 1 2018 $1,456,000 Equity Value Method Foxx Retained Earnings as per initial value method $1,234,000 Add: Net Equity Accrual=(Net Income of 2016-Dividend declared)=($113,500-$20,000) $93,500 Less: depreciation on Excess of Fair Value of Equipment over Book value in 2016 -$6,000 Add: Net Equity Accrual 2017=(Net Income of 2017-Dividend declared)=($148500-$20000) $128,500 Less: depreciation on Excess of Fair Value of Equipment over Book value in 2017 -$6,000 Foxx Balance of Retained Earnings Jan 1 2018 $1,444,000

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