Tyler Company acquired all of Jasmine Company\'s outstanding stock on January 1,

Question

Tyler Company acquired all of Jasmine Company's outstanding stock on January 1, 2016, for $258,100 in cash. Jasmine had a book value of only $189,500 on that date. However, equipment (having an eight-year remaining life) was undervalued by $68,000 on Jasmine's financial records. A building with a 20-year remaining life was overvalued by $15,000. Subsequent to the acquisition, Jasmine reported the following: 2016 2017 2018 Net Income 65,400 80,500 33,000 Dividends Declared 16,008 40,000 20,000 In accounting for this investment, Tyler has used the equity method. Selected accounts taken from the financial records of these two companies as of December 31, 2018, follow: Tyler Company asmine Company Revenues-operating Expenses Equipment (net) Buildings (net) Common stock Retained earnings, 12/31/18 $(360,00) (178,000) 291,000 512,000 304,000 (290,000) (436,000) 145,000 80,500 69,300 (57,900) (202,000) Determine the following account balances as of December 31, 2018 a. Investment in Jasmine Company b. Equity in Subsidiary Earnings c. Consolidated Net Income d. Consolidated Equipment (net) e. Consolidated Buildings (net) f. Consolidated Goodwill (net) g. Consolidated Common Stock h. Consolidated Retained Earnings, 12/31/18

Explanation / Answer

Part A

Schedule 1 Acquisition-Date Fair Value Allocation and Amortization

Jasmines acquisition-date fair value.... $258100

Book value of Jasmine......... (189500)

Fair value in excess of book value...... 68600

Equipment.... 68000...... 8 yrs.....$8500

Buildings (overvalued).....(15,000)....... 20 yrs..... (750)

Goodwill................ $15,600........... indefinite .......... 0

Total .......$7750

Investment in Jasmine Company12/31/11

Jasmines acquisition-date fair value........ $258100

2016 Increase in book value of subsidiary... 55400

2016 Excess amortizations...... (7750)

2017 Increase in book value of subsidiary..... 40500

2017 Excess amortizations..... (7750)

2018 Increase in book value of subsidiary.... 13,000

2018 Excess amortizations....... (7750)

Investment in Jasmine Company $343750

Part B Equity in Subsidiary Earnings

Income accrual...... $33,000

Excess amortizations..... (7750)

Equity in subsidiary earnings.....$25250

Part C Consolidated Net Income

Consolidated revenues (add book values)..... $538000

Consolidated expenses (add book values)..... (436,000)

Excess amortization expenses................. ... (7750)

Consolidated net income................ ........ .$94250

Part D. Consolidated Equipment

Book values added together...... $592500

Allocation of purchase price........ 68000

Excess depreciation ($8500 × 3)..... (25500)

Consolidated equipment..... $635000

e. Consolidated Buildings

Book values added together....... $373300

Allocation of purchase price....... (15,000)

Excess depreciation ($750 × 3)..... 2250

Consolidated buildings.......... $360550

Part F Consolidated goodwill

Allocation of excess fair value to Goodwill..... $15,600

g. Consolidated Common Stock....... $290,000

As a purchase, the parent's balance of $290,000 is used (the acquired company's common stock will be eliminated each year on the consolidation worksheet).

h. Consolidated Retained Earnings $436,000

Tyler's balance of $436,000 is equal to the consolidated total because the equity method has been applied.

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