Question

The following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2021: Penske Revenues $ (708,000) Cost of goods sold 252,800 Depreciation expense 159,000 Investment income Not given Dividends declared 80,000 Retained earnings, 1/1/21 (758,000) Current assets 400,000 Copyrights 1,060,000 Royalty agreements 690,000 Investment in Stanza Not given Liabilities (690,000) Common stock (600,000) ($20 par) Additional paid-in capital (150,000) Note: Parentheses indicate a credit balance. Stanza $ (632,000) 158,000 210,000 @ 60,000 (206,000) 536,000 419,000 1,112,000 8 (1,377,000) (200,000) ($10 par) (80,000) On January 1, 2021, Penske acquired all of Stanza's outstanding stock for $757.000 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 $510,000 book value but a fair value of $654,000. a. As of December 31, 2021, what is the consolidated copyrights balance? b. For the year ending December 31, 2021, what is consolidated net income? c. As of December 31, 2021, what is the consolidated retained earnings balance? d. As of December 31, 2021, what is the consolidated balance to be reported for goodwill? Amounts Consolidated copyrights Consolidated net income b.

Answer 1

a	Consolidated Copyright Balance	$1,599,000
b	Consolidated Net Income	$2,143,800
c	Consolidated Retained Earnings Balance	$2,821,800
d	Consolidated Balance to Be reported for good will	$127,000

Explanation;  

a)

Fair Value of copy right	$654,000
Less: Book Value of Copy Right	$510,000
Allocation of Copy Right	$144,000
Number of Years	6
Excess Amortization 2021	$24,000

Consolidated Copy Right Balance

Penske Book Value of Copy Right	$1,060,000
Stanza Book Value of Copy Right	$419,000
Add: Allocation of Copy Right	$144,000
Less: Excess Amortization	$(24,000)
Consolidated Copy Right Balance	$1,599,000

b) Consolidated Net Income

Consolidated Revenue ($708,000+$632,000)		$1,340,000
Less;
Consolidated Exp ($252,800+$158,000+$159,000+$210,000)	$779,800
Excess Amortization	$24,000
Total Expenses		$803,800
Consolidated Net Income		$2,143,800

c) Consolidated Retained Earnings Balance

Retained Earnings of Penske as on 1/1/21	$758,000
Add: Net Income	$2,143,800
Less: Dividend Declared	$(80,000)
Consolidated Retained Earnings 31/12/2021	$2,821,800

d) Consolidated Balance to Be reported for good will

Fair Value of Stanza acquisition		$757,000
Less: Book Value of Stanza;
Beginning Retained Earnings	$206,000
Common Stock	$200,000
Additional paid in Capital	$80,000	$486,000
Fair Value in Excess of Book Value		$271,000
Less: Excess fair value allocated to copy right		$(144,000)
Good Will		$127,000

Answer 2

21. Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2012: 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 –0– Dividends paid . . . . . . . . . . . . . . . . . . . . . . 80,000 60,000 Retained earnings, 1/1/12 . . . . . . . . . . . . . . (600,000) (200,000) Current assets . . . . . . . . . . . . . . . . . . . . . . . 400,000 500,000 Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 400,000 Royalty agreements . . . . . . . . . . . . . . . . . . 600,000 1,000,000 Investment in Stanza . . . . . . . . . . . . . . . . . . Not given –0– Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . (500,000) (1,380,000) Common stock . . . . . . . . . . . . . . . . . . . . . . (600,000) ($20 par) (200,000) ($10 par) Additional paid-in capital . . . . . . . . . . . . . . (150,000) (80,000)

Answer 3

21. Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2012: 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 –0– Dividends paid . . . . . . . . . . . . . . . . . . . . . . 80,000 60,000 Retained earnings, 1/1/12 . . . . . . . . . . . . . . (600,000) (200,000) Current assets . . . . . . . . . . . . . . . . . . . . . . . 400,000 500,000 Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 400,000 Royalty agreements . . . . . . . . . . . . . . . . . . 600,000 1,000,000 Investment in Stanza . . . . . . . . . . . . . . . . . . Not given –0– Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . (500,000) (1,380,000) Common stock . . . . . . . . . . . . . . . . . . . . . . (600,000) ($20 par) (200,000) ($10 par) Additional paid-in capital . . . . . . . . . . . . . . (150,000) (80,000)

Answer 4

28. Branson paid $465,000 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2011. On that date, the subsidiary had a book value of $340,000 (common stock of $200,000 and retained earnings of $140,000), although various unrecorded royalty agreements were assessed at a $100,000 fair value. The royalty agreements had an estimated 10-year remaining useful life. In negotiating the acquisition price, Branson also promised to pay Wolfpack’s former owners an additional $50,000 if Wolfpack’s income exceeded $120,000 total over the first two years after the acquisition. At the acquisition date, Branson estimated the probability adjusted present value of this contingent consideration at $35,000. On December 31, 2011, based on Wolfpack’s earnings to date, Branson increased the value of the contingency to $40,000. During the subsequent two years, Wolfpack reported the following amounts for income and