Reference no: EM132795531
On January 1, 2020, Corgan Company acquired 70 percent of the outstanding voting stock of Smashing, Inc., for a total of $1,155,000 in cash and other consideration. At the acquisition date, Smashing had common stock of $840,000, retained earnings of $390,000, and a noncontrolling interest fair value of $495,000. Corgan attributed the excess of fair value over Smashing's book value to various covenants with a 20-year remaining life. Corgan uses the equity method to account for its investment in Smashing.
During the next two years, Smashing reported the following:
Net Income Dividends Declared Inventory Purchases from Corgan
2020 $290,000 $49,000 $240,000
2021 270,000 59,000 260,000
Corgan sells inventory to Smashing using a 60 percent markup on cost. At the end of 2020 and 2021, 40 percent of the current year purchases remain in Smashing's inventory.
Problem 1: Compute the equity method balance in Corgan's Investment in Smashing, Inc., account as of December 31, 2021.
Problem 2: Prepare the worksheet adjustments for the December 31, 2021, consolidation of Corgan and Smashing.
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