Reference no: EM132818533

Problem - The following are selected accounts and balances for Mergaronite Company and Hill, Inc., as of December 31, 2021. Several of Mergaronite's accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period.

	Mergaronite	Hill
Revenues	$(614,000)	$(252,000)
Cost of goods sold	274,000	96,000
Depreciation expense	106,000	56,000
Investment income	NA	NA
Retained earnings, 1/1/21	(886,000)	(610,000)
Dividends declared	138,000	40,000
Current assets	204,000	668,000
Land	314,000	100,000
Buildings (net)	514,000	138,000
Equipment (net)	196,000	258,000
Liabilities	(396,000)	(316,000)
Common stock	(300,000)	(36,000)
Additional paid-in capital	(40,000)	(914,000)

Assume that Mergaronite acquired Hill on January 1, 2017, by issuing 6,800 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2017, Hill's land was undervalued by $18,600, its buildings were overvalued by $31,200, and equipment was undervalued by $58,200. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $94,000 was developed internally by Hill and was estimated to have a 20-year remaining useful life.

Required -

a. Determine the December 31, 2021, consolidated totals for the following accounts:

Revenues

Cost of goods sold

Depreciation expense

Amortization expense

Buildings

Equipment

Customer list

Common stock

Additional paid-in capital

b. In requirement (a), can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?

c. If the parent uses the equity method, what consolidation entries would be used on a 2021 worksheet?