Reference no: EM132514551
Question - Dragon Corporation purchased 90 percent of Heart Corporation's outstanding stock for $15,200,000 cash on January 1 ,2017 when Heart's stockholders' equity consisted of $7,000,000 capital stock and $4,400,000 retained earnings. The excess was allocated $3,000,000 to undervalued equipment with an eight-year remaining useful life and the remainder to Goodwill. Heart's net income and dividends for 2017 were $3,000,000 and $600,000 respectively. Dragon owed Heart $30,000 at 12-31-2017 which was recorded on Dragon's books at 12-31-2017. Comparative balance sheets at for Dragon and Heart Corporations at December 31, 2017 after they had closed out their fiscal years are as follows (In thousands.)
Dragon Heart
Cash 1,100 700
Receivables-net 1,800 1,500
Dividends receivable 450
Inventory 2,900 3,000
Land 3,000 3,100
Buildings-net 9,000 5,000
Equipment-net 7,000 3,500
Investment in Heart 17,023
Total 42,273 16,800
Accounts payable 1,100 2,500
Dividends payable 1,800 500
Capital stock 30,000 7,000
Retained earnings 9,373 6,800
Total 42,273 16,800
Required -
1. Perform the preliminary calculation to determine the excess of fair value over book value for the initial investment in Heart Corporation.
2. Prepare amortization schedule for the Fair value/book value differences to include the initial amounts determined and amortization expense for 2017 and the unamortized balances at 12-31-2017.
3. Calculate the total income from Heart for 2017.
4. Calculate the balance in the Investment in Heart as recorded on the books of Dragon at December 31, 2017.
5. Prepare the journal entries needed to consolidate Dragon and Heart's balance sheet.
6. Prepare the consolidated balance sheet work papers for Dragon corporation and subsidiary on December 31, 2017.
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