Question

28. Plaza, Inc., acquires 80 percent of the outstanding common stock of Stanford Corporation on

January

1, 2018, in exchange for $900,000 cash. At the acquisition date, Stanford’s total fair value,

including the noncontrolling interest, was assessed at $1,125,000. Also at the acquisition date,

Stanford’s book value was $690,000.

Several individual items on Stanford’s financial records had fair values that differed from their

book values as follows:

                                                                                             BOOK VALUE       FAIR VALUE

Tradenames (indefinite life) . . . . . . . . . . . . . . . . . . . $ 360,000               $383,000

Property and equipment (net, 8-year

remaining life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      290,000                 330,000

Patent (14-year remaining life) . . . . . . . . . . . . . . . . .   132,000                  272,000

LO 4-1, 4-5, 4-6

For internal reporting purposes, Plaza, Inc., employs the equity method to account for this

investment. The following account balances are for the year ending December 31, 2018, for both

companies.

                                                                                                  Plaza              Stanford

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,400,000)    $ (825,000)

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . .     774,000              395,750

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . .     328,000             36,250

Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . .         –0–                 28,000

Equity in income of Stanford . . . . . . . . . . . . . . . . . . .      (280,000)              –0–

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ (578,000)     $ (365,000)

Retained earnings, 1/1/18 . . . . . . . . . . . . . . . . . . . . .     $(1,275,000)   $ (530,000)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (578,000)        (365,000)

Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . .         300,000            50,000

Retained earnings, 12/31/18 . . . . . . . . . . . . . . . .             $(1,553,000)    $ (845,000)

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 860,000        $ 432,250

Investment in Stanford . . . . . . . . . . . . . . . . . . . . . . . .        1,140,000              –0–

Tradenames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          240,000           360,000

Property and equipment (net) . . . . . . . . . . . . . . . . . .         1,030,000         253,750

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           –0–                104,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           $ 3,270,000     $ 1,150,000

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $ (142,000)      $ (145,000)

Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (300,000)        (120,000)

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . .         (1,275,000)       (40,000)

Retained earnings (above) . . . . . . . . . . . . . . . . . . . . .          (1,553,000)      (845,000)

Total liabilities and equities . . . . . . . . . . . . . . . . . .              $(3,270,000)     $(1,150,000)

At year-end, there were no intra-entity receivables or payables.

Prepare a worksheet to consolidate the financial statements of Plaza, Inc., and its subsidiary Stanford.

Answer 1