The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $10,000. Small declared and paid dividends in the same period. Credits are indicated by parentheses. How was the $135,000 Equity in Income of Small balance computed? Without preparing a worksheet or consolidation entries, determine and explain the totals to be reported by this business combination for the year ending December 31, 2021. Verify the amounts determined in part (b) by producing a consolidation worksheet for Giant and Small for the year ending December 31, 2021. page 144 If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2021, how would the parent’s accounts reflect the impairment loss? How would the worksheet process change? What impact does an impairment loss have on consolidated financial statements?
Giant acquired all of Small’s common stock on January 1, 2017, in exchange for cash of $770,000. On that day, Small reported common stock of $170,000 and
The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $10,000. Small declared and paid dividends in the same period. Credits are indicated by parentheses.
-
How was the $135,000 Equity in Income of Small balance computed?
-
Without preparing a worksheet or consolidation entries, determine and explain the totals to be reported by this business combination for the year ending December 31, 2021.
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Verify the amounts determined in part (b) by producing a consolidation worksheet for Giant and Small for the year ending December 31, 2021.
page 144
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If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2021, how would the parent’s accounts reflect the impairment loss? How would the worksheet process change? What impact does an impairment loss have on consolidated financial statements?
|
|
Giant |
Small |
|---|---|---|
|
Revenues |
$(1,175,000) |
$ (360,000) |
|
Cost of goods sold |
550,000 |
90,000 |
|
|
172,000 |
130,000 |
|
Equity in income of Small |
(135,000) |
–0– |
|
Net income |
$ (588,000) |
$ (140,000) |
|
Retained earnings, 1/1/21 |
$(1,417,000) |
$ (620,000) |
|
Net income (above) |
(588,000) |
(140,000) |
|
Dividends declared |
310,000 |
110,000 |
|
Retained earnings, 12/31/21 |
$(1,695,000) |
$ (650,000) |
|
Current assets |
$ 398,000 |
$ 318,000 |
|
Investment in Small |
995,000 |
–0– |
|
Land |
440,000 |
165,000 |
|
Buildings (net) |
304,000 |
419,000 |
|
Equipment (net) |
648,000 |
286,000 |
|
Goodwill |
–0– |
–0– |
|
Total assets |
$ 2,785,000 |
$ 1,188,000 |
|
Liabilities |
$ (840,000) |
$ (368,000) |
|
Common stock |
(250,000) |
(170,000) |
|
Retained earnings (above) |
(1,695,000) |
(650,000) |
|
Total liabilities and equity |
$(2,785,000) |
$ (1,188,000) |
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