Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2009. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams's acquisition. On December 31, 2009, Barstow had the following account balances:
Book Value Fair Value
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 160,000 $ 160,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 150,000
Buildings (10-year life) . . . . . . . . . . . . . . . . . . . . 220,000 200,000
Equipment (5-year life) . . . . . . . . . . . . . . . . . . . 160,000 200,000
Patents (10-year life) . . . . . . . . . . . . . . . . . . . . . -0- 50,000
Notes payable (5-year life) . . . . . . . . . . . . . . . . . (200,000) (180,000)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . (180,000) -
Retained earnings, 12/31/09 . . . . . . . . . . . . . . . (280,000) -
December 31, 2011, adjusted trial balances for the two companies follow:
Adams Barstow,
Corporation Inc.
Debits
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 610,000 $ 250,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,000 150,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490,000 250,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 873,000 150,000
Investment in Barstow, Inc. . . . . . . . . . . . . . . . . 702,000 -0-
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . 480,000 90,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . 100,000 55,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 40,000 15,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 70,000
Total debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,785,000 $1,030,000
Credits
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 860,000 $ 230,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 510,000 180,000
Retained earnings, 1/1/11 . . . . . . . . . . . . . . . . . 1,367,000 340,000
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940,000 280,000
Investment income . . . . . . . . . . . . . . . . . . . . . . 108,000 -0-
Total credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,785,000 $1,030,000
a. Prepare schedules for acquisition-date fair-value allocations and amortizations for Adams's investment in Barstow.
b. Determine Adams's method of accounting for its investment in Barstow. Support your answer with a numerical explanation.