Question

On January 1, 2017, Travers Company acquired 90 percent of Yarrow Company's outstanding stock for $945,000 The 10 percent noncontrolling interest had an assessed fair value of $105,000 on that date. Any acquisition-date excess fair value over book value was attributed to an unrecorded customer list developed by Yarrow with a emaining life of 15 years. On the same date, Yarrow acquired an 80 percent interest in Stookey Company for $544,000. At the acquisition date, the 20 percent noncontrolling interest fair value was $136,000. Any excess fair value was attributed to a fully amortized copyright that had a remaining life of 10 years. Although both investments are accounted for using the initial value method, neither Yarrow nor Stookey have distributed dividends since the acquisition date. Travers has a policy to declare and pay cash dividends each year equal to 40 percentof its separate company operating earnings. Reported income totals for 2017 follow: $550,000 285,000 220,000 Yarrow Company Following are the 2018 financial statements for these three companies. Stookey has transferred numerous amounts of inventory to Yarrow since the takeover amounting to $130,000 (2017) and $162,500 (2018). These transactions include the same markup applicable to Stookey's outside sales. In each year, Yarrow carried 20 percent of this inventory into the succeeding year before disposing of it. An effective tax rate of 40 percent is applicable to a companies. All dividend declarations are paid in the same period. (1,150,000) (792,500) (550, 000) Cost of goods sold Operating 612,500 127,500 422,500 105,000 330,000 110,000 s (410,000) (265,000) (110,000) $(950,000) (795,000) (525, 000) Retained earnings, 1/1/18 (410,000) 164,000 (265,000) income (above) (110,000) $(1,196,000) $(1,060,000) (635,000) $ 502,500 tained $596,500 945,000 Current assets Investment in Yarrow Investment in Stookey Company Land, buildings, and equipment (net) $ 394,700 544,000 886,000-505-0- 1,246,500 $ 2,788,000 $(1,092,000) s 1,932,500 Total assets Liabilities $ 899,700 (542,500) (64,700)

Answer 1