Question

Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:
Penske Stanza
Revenues 700,000 400,000
Cost of goods sold 250,000 100,000
Depreciation expense 150,000 200,000
Investment income Not given __
Dividend declared 80,000 60,000
Retained earnings 600,000 200,000
Current assets 400,000 500,000
Copyrights 900,000 400,000
Royal agreements 600,000 1,00,0000
Investment in stanza ---- -------
Liabilities 500,000 13,80,000
Common stock 600,000 200,000
Additional paid capital 150,000 80,000
On January 1, 2018, Penske acquired all of Stanza's outstanding stock for $680,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition, copyrights (with a six-year remaining life) have a $440,000 book value but a fair value of $560,000.
a. As of December 31, 2018, what is the consolidated copyrights balance?
b. For the year ending December 31, 2018, what is consolidated net income?
c. As of December 31, 2018, what is the consolidated retained earnings balance?
d. As of December 31, 2018, what is the consolidated balance to be reported for goodwill?

Answer 1

Answer:

a.   Consolidated Copyright

Penske (Book value)                     $900,000

Stanza (Book value)                      $400,000

Allocation                                        $120,000

Less: Excess Amortization             ($20,000)

Total                                                 $1,400,000

b. Consolidated Net Income 2019

Revenues                                                              $1,100,000

Expenses:

Cost of goods sold                $350,000

Depreciation Expenses         $350,000

                                                $700,000

Excess amortization                $20,000                 $720,000

Consolidated Net Income                                       $380,000

Workings

Cost of goods sold = 250,000 + 100,000 = 350,000

Depreciation Expenses = 150,000 + 200,000 = 350,000

3. Consolidated Retainer earnings on December 31,2018

Retained Earnings 1/1/28                            $600,000

Net Income 2018                                         $380,000

Less: Dividend Declared 2018 (Penske)    ($80,000)

Total                                                              $900,000

d. Consolidated Balance to be reported for goodwill

Stanza acquisition  fair value                $680,000

(10,000 in stock issue costs reduced

additional paid in capital)

Book value of subsidiary                       $480,000

(1/1/18 Stockholder equity balance)

Fair value in excess of book value        $200,000

Less:   Excess fair value allocated          $120,000

to copy right based on fair value

Goodwill                                                    $80,000

Workings

Stockholder equity balance 1/1/18

Common stock                  200,000

Additional paid-in capital   80,000

Retained earnings              200,000

Stockholder equity             480,000

Excess fair value

Copyright fair value              560,000

Less Copyright book value  440,000

Excess fair value allocated   120,000

Copyright year                         6 years

Annual Excess Amortization $20,000