On December 31, 2017 Potter and Hogwarts had the following balance sheets Income
ID: 2544198 • Letter: O
Question
On December 31, 2017 Potter and Hogwarts had the following balance sheets
Income statements
Potter Hogwarts
revenue 5,000,000 80,000
depreciation expense equip 100000 10000
Note: the building, equipment and patent of Hogwarts depreciation expense bldg 200,000 10,000 each have a 10 year remaining life with no salvage and amortization exp patent 5000 5000 straight line depreciation is used.
investment income A 0
income B 55,000
Potter Hogwarts
cash 3,000,000 100,000
equipment 1,000,000 100,000
a/d equip 200,000 20,000
Land 2,000,000 20,000
building 3,000,000 100,000
a/d building 1,200,000 40,000
patent 45,000 45,000
Investment in Hogwarts C 0
total assets D 305,000
accounts payable 1,000,000 40,000
notes payable 1,000,000 40,000
common stock $5 par E 150,000 The only stock transaction Potter had in 2017 was the purchase of Hogwarts
apic c/s F 0
r/e G 75,000
Remember, On January 2nd Potter acquired all of the stock of Hogwarts by issuing 50,000 shares of common stock when the stock was selling for $11 per share. At that time the fair market value of Hogwarts assets were: equipment
Land 60,000
building 30,000
patent 110,000
40,000
REQUIRED:
A) MAKE THE JOURNAL ENTRY POTTER MAKES CONNECTED WITH ITS INVESTMENT IN HOGWARTS (YOU DO NOT HAVE TO MAKE THE ENTRY OF JAN. 2 ACQUIRING THE COMPANY)
B) FILL IN THE ANSWERS FOR A THROUGH G LET ME KNOW WHAT METHOD (INITIAL VALUE, EQUITY, PARTIAL EQUITY) YOU ARE USING
C) MAKE ANY NECESSARY WORKSHEET ENTRIES
D) PREPARE A CONSOLIDATED BALANCE SHEET ON 12/31/2017
E) PREPARE A CONSOLIDATED INCOME STATEMENT FOR 2017
HINT: DON'T FORGET ABOUT DIVIDENDS THAT HOGWARTS AND/OR POTTER MAY HAVE PAID.
Explanation / Answer
In question, total assets given as 3,05,000 , but as add up make it as 4,25,000, thus removing by Building Cost 1,00,000 and Add. Equipemnt 20,000 make it feasible sum, and solution on that part. Revalued of 40,000 is not specified, thus remaining in sum is Equipment only, as cash value can't be revalued.
Figure in Potter Balance Are wrong, thus its has to be first corrected and then Point 3, 4 can be solved.
Net Assets
Thus Goodwill will be booked in Potter,
Net Assets Dr. 2,60,000
Goodwill Dr. 2,90,000
To Purchase Acquisation Cr. 5,50,000
Particular Amount Land 60,000 Building 30,000 Patent 1,10,000 Cash 1,00,000 Equipment 40,000 Total Assets (A) 3,40,000 Deducted : Accounts Payable 40,000 Notes Payable 40,000 Total Liablites (A) 80,000 Net Assets (A-B) 2,60,000Related Questions
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