Question

Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018: Stanza (632,000) 158,000 258,000 Revenues Cost of goods sold Depreciation expense Investment income Dividends declared Retained earnings, 1/1/18 Current assets Copyrights Royalty agreements Investment in Stanza Liabilities Common stock Additional paid-in capital Penske (796, 000) 284,100 153, eee Not given 80,000 (686,000) 408, eee 974,000 646,000 Not given (570,000) (600,000) ($20 par) (150,000) 60,000 (362,000) 612, eee 519, eee 1,004,000 (1,337, eee) (200,000) ($10 par) (80,000) Note: Parentheses indicate a credit balance, On January 1, 2018, Penske acquired all of Stanza's outstanding stock for $864,000 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 $582,000 book value but a fair value of $732,000. 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

a.	Consolidated copyrights	$1618000
b.	Consolidated net income	$549900
c.	Consolidated retained earnings	$1075900
d.	Consolidated Goodwill	$72000

(Consolidated accounts one year after acquisition)

Stanza acquisition fair value ($10,000 in stock issue costs reduce additional paid‑in capital)	$864000
Book value of subsidiary (1/1/18 stockholders' equity balances) (common stock + additional paid in capital +retained earnings) (200000+80000+362000)	642000
Fair value in excess of book value	222000

     

		Remaining life	Amortization
Excess fair value allocated to copyrights based on fair value	150000(732000-582000)	6	25000
Goodwill	72000 (222000-150000)	indefinite	0
Total	270000		25000

Part A

Consolidated copyrights

Penske (book value)	974000
Stanza (book value)	519000
Allocation (above)	150000
Excess amortization, 2018	(25000)
Total	$1618000

Part B

Consolidated net income

Revenues (add book values)		1428000
Expenses:
Add book values (284100+158000+153000+258000)	853100
Excess amortizations	25000	878100
Consolidated net income		549900

Part C

Consolidated retained earnings

Retained earnings 1/1/18 (Penske)	606000
Net income 2018 (above)	549900
Dividends declared 2018 (Penske)	(80000)
Total	$1075900

Stanza's retained earnings balance as of 1/118, is not included as these operations took place before the acquisition. Stanza's dividends were attributable to Penske and thus not included as they are intra-entity in nature.

Part D

Consolidated goodwill = $72000