Assume Ellsworth uses the initial value method . Prepare consolidation entries f

Question

Assume Ellsworth uses the initial value method. Prepare consolidation entries for 2014.

Question I Ellsworth acquired Merrell on January 1, 2008 by issuing shares of common stock. On January 1, 2008 all of Merrell's assets and liabilities had fair values equal to book value except for the following: land was undervalued by $20,000 buildings were undervalued by $300,000 (20-year remaining useful life) equipment was overvalued by $60,000 (6-year remaining useful life) In addition, a customer list with an appraised value of $200,000 and a 10-year useful life had been developed internally by Merrell. Assume Ellsworth originally acquired Merrell for the fair value of its net identifiable assets, which was $810,000 at the date of acquisition. Merrell's Retained Earnings balance at the date of acquisition was $150,000 The following are selected accounts for Ellsworth Company and Merrell, Inc. as of December 31, 2014 (Ellsworth's Investment in Merrell and Equity in Merrell's Income accounts have been omitted). Credit balances are indicated by parentheses. Ellsworth Merrell (450,000 (600,000) Revenues Cost of Goods Sold Depreciation Expense 200,000 280,000 900,000 600,000 Retained Earnings, 1/1/14 600,000 Dividends Paid Current Assets Land 300,000 200,000 200,000 40.000 690,000 90,000 140,000 250,000 Buildings (net Equipment (net Liabilities Common Stock Additional Paid-in Capital (310,000 40,000 160,000 80,000

Explanation / Answer

Accounts Title Dr Cr 1-Jan-14 Commom Stock (mercell) 40000 Additional Paid In Capital (Merrell) 160000 Retained Earnings 600000 Investment in Merrell 800000 (to eliminate stockholder equity) 31-Dec-14 Land $20,000 Building   (net) 195000 Intangible Assets(Customer List) (net) 60000 Investment in Merrell $275,000 To record unamortized allocation balances as of end of current year 810000 Additional depreciation to be charged from Jan1 2008 to 2014 for 7 years Unamortized value Building 300000 105000 195000 Depreciation 300000/20 15000 Equipment overvalued 60000 -60000 - Depreciation overchaged per year 10000 Customer list 200000 -140000 60000 Depreciation per year 20000 31-Dec-14 Amortization Expense on Intangible assets 140000 Depreciation on Bullding 105000 Intangible Assets 140000 Building 105000 (To recognize excess acquisition-date fair-value amortizations for the period

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