Reference no: EM132651471
Question - Dassy Enterprises acquired Avery, Inc. on January 1, 2019. The $440,000 excess of cost over book value of Avery net assets was partly attributable to a patent undervalued by $210,000. The patent has a 10-year life. The remaining excess is considered goodwill. The parent uses the equity method of pre-consolidation Equity investment bookkeeping. The separate financial statements of the two companies for 2022 are presented below.
Dassey Avery
Sales revenue $3,100,000 $440,000
Cost of goods sold -1,580,000 -252,000
Gross profit 1,520,000 188,000
Operating expenses -485,000 -68,000
Equity income 99,000 0
Net Income $1,134,000 $120,000
Retained Earnings, 1/1/22 $1,700,000 $750,000
Net income 1,134,000 120,000
Dividends -65,000 -42,000
Retained Earnings, 12/31/22 $2,769,000 $828,000
Cash and receivables $535,000 $501,000
Inventory 758,000840,000
Equity investment 1,844,160
Property, plant & equipment (Net) 4,558,840 1,205,480
Total Assets $7,696,000 $2,546,480
Accounts payable $265,000 $182,430
Accrued liabilities 458,000 272,390
Notes payable 780,000 603,500
Common stock 460,000 204,540
Additional paid-in capital 2,964,000 455,620
Retained Earnings, 12/31/22 2,769,000 828,000
Total Liabilities and Equities $7,696,000 $2,546,480
Required -
a. Prepare all necessary consolidation entries for 2022 consolidated financial statements.
b. Evaluate Goodwill at year end and make the required journal entry for impairment, if necessary. The estimated fair value of the subsidiary is $1,700,000 at year end is the fair value of the identifiable net assets is $1,550,000.