Foxx Corporation acquired all of Greenburg Company's outstanding stock on January 1, 2011, for $600,000 cash. Greenburg's accounting records showed net assets on that date of $470,000, although equipment with a 10-year life was undervalued on the records by $90,000. Any recognized goodwill is considered to have an indefinite life.
Greenburg reports net income in 2011 of $90,000 and $100,000 in 2012. The subsidiary paid dividends of $20,000 in each of these two years.
Financial figures for the year ending December 31, 2013, follow. Credit balances are indicated by parentheses.
Foxx Greenburg
Revenues $ (800,000) $ (600,000)
Cost of goods sold 100,000 150,000
Depreciation expense 300,000 350,000
Investment income (20,000) 0
Net income $ (420,000) $ (100,000)
Retained earnings, 1/1/13 $ (1,100,000) $ (320,000)
Net income (420,000) (100,000)
Dividends paid 120,000 20,000
Retained earnings, 12/31/13 $ (1,400,000) $ (400,000)
Current assets $ 300,000 $ 100,000
Investment in subsidiary 600,000 0
Equipment (net) 900,000 600,000
Buildings (net) 800,000 400,000
Land 600,000 100,000
Total assets $ 3,200,000 $ 1,200,000
Liabilities $ (900,000) $ (500,000)
Common stock (900,000) (300,000)
Retained earnings (1,400,000) (400,000)
Total liabilities and equity $ (3,200,000) $ (1,200,000)
Note: Parentheses indicate a credit balance.
a. Determine the December 31, 2013, consolidated balance for each of the following accounts: (Input all amounts as positive values.)
Consolidated
Balances
Depreciation expense $
Dividends paid $
Revenues $
Equipment $
Buildings $
Goodwill $
Common stock $
b. Whether parent's choice of an accounting method for its investment affect the balances computed in requirement (a)?
No, doesn't affect consolidated totals but only internal reporting of parent
No, neither affects consolidated totals nor internal reporting of parent
Yes, affects consolidated totals
c. Which method of accounting for this subsidiary is the parent actually using for internal reporting purposes?
Initial value method
Partial equity method
Equity method
d. Determine parent's investment income for 2013 under partial equity method and equity method.
Investment Income
Partial equity method $
Equity method $
e. What would be Foxx's balance for retained earnings as of January 1, 2013, if each of the following methods had been in use?
Retained Earnings
Initial value method $
Partial equity method $
Equity method $