4 Following are selected account balances from Penske Company and Stanza Corpora

Question

4 Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018 Penske $ (700,000) Stanza $ (400,000) Revenues Cost of goods sold Depreciation expense Investment income Dividends declared Retained earnings, 1/1/18 Current assets Copyrights Royalty agreements Investment in Stanza Liabilities Common stock Additional paid-in capital 10 points 250,000 150,000 100,000 200,000 Not given 80,000 (600, 000) 400,000 900,000 600,000 60,000 (200, 000) 500,000 400,000 eBook 1,000,000 Not given (500,000) (1,380,000) (600,000) ($20 par) (200,000) ($10 par) Print (150,000) (80,000) Note: Parentheses indicate a credit balance References On January 1, 2018, Penske acquired all of Stanza's outstanding stock for $680,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition copyrights (with a six-year remaining life) have a $440,000 book value but a fair value of $560,000. a. As of December 31, 2018, what is the consolidated copyrights balance? b. For the year ending December 31, 2018, what is consolidated net income? c. As of December 31, 2018, what is the consolidated retained earnings balance? d. As of December 31, 2018, what is the consolidated balance to be reported for goodwill? a. Consolidated copyrights b. Consolidated net income c. Consolidated retained earnings d. Consolidated goodwill

Explanation / Answer

Purchase Consideration $680,000 Less : Book value of stanza -480000 (Stockholders equity as on 01.01.2019) Fair value in excess of book value $200,000 Amortization amount Excess Value allocated to copyrights (560000-440000) 120000 6 20000 Excess value allocated to Goodwill $80,000 a Consolidated copyrights Copyrights Book Value - Penske $900,000 Copyrights Book Value - Stanza 400000 Allocation as per above 120000 Less : Amortization -20000 Total $1,400,000 b Consolidated, net income Revenue, Total book value $1,100,000 Expenses, Total book value $700,000 Excess Amortization 20000 $720,000 Consolidated, net income $380,000 c Consolidated retained earnings Retained earnings $600,000 Add: Net Income $380,000 Less : dividend ($80,000) Total $900,000 d Consolidated, Goodwill $80,000 as calculated above

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