Reference no: EM132380254
Question
Cost method consolidation entries (controlling investment in affiliate, fair value differs from book value)
Assume an investee has the following financial statement information for the three years ending December 31, 2019:
(At December 31)
2019 2018 2017
Current assets $285,000 $277,500 $207,000
Tangible fixed assets 662,500 575,000 563,000
Intangible assets 40,000 45,000 50,000
Total assets $987,500 $897,500 $820,000
Current liabilities $120,000 $110,000 $850,000
Noncurrent liabilities 266,250 242,500 220,000
Common stock 100,000 100,000 100,000
Additional paid-in capital 100,000 100,000 100,000
Retained earnings 400,000 345,000 300,000
Stockholders' equity 600,000 545,000 500,000
Total liabilities and equity $986,250 $897,500 $820,000
(For the years ended December 31)
2019 2018 2017
Revenues $970,000 $920,000 $850,000
Expenses 875,000 840,000 775,000
Net income $95,000 $80,000 $75,000
Dividends $40,000 $35,000 $25,000
Assume on January 1, 2017, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values, except for tangible fixed assets, which had fair value that was $112,500 higher than the investee's recorded book value.
The tangible fixed assets had a remaining useful life of 6 years. In addition, the acquisition resulted in goodwill in the amount of $218,750 recognized in the consolidated financial statements of the investor company. On January 1, 2017, the investee's retained earnings balance was $250,000.
Assuming that the investor company uses the cost method to account for its investment in the investee, what is the amount of the [ADJ] entry necessary to prepare the consolidated financial statements for the year ended December 31, 2019? Please Explain.