Question

2. Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2018. Several of Mergaronite's accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period. Hill Mergaronite $(600.000) 280,000 $(250,000 Revenues Cost of goods sold. . Depreciation expense . 100,000 50,000 120,000 NA Not given (900,000) 130,000 200,000 300,000 500,000 Investment income . (600,000) 40,000 Dividends declared. 690,000 90,000 140,000 Land. Buildings (net) Equipment (net) Liabilities . .. . Common stock 250.000 200,000 (400,000) (300.000) (50,000) (310,000) (40,000) (160,000) Additional paid-in capital..

Answer 1

Answer

(A). Workings to determine the consolidated totals as on December 31 2018

Revenues

Particulars	Amount
Revenues of Mergaronite	$ 6,00,000
Revenues of Hill	$2,50,000
Total	$8,50,000

Amortization Expense

Particulars	Amount
Amortization Expense for 2018 ($ 100,000/20 = $ 5,000)	$5,000
Total	$5,000

Building

Particulars	Amount
Building of Mergaronite	$5,00,000
Building of Hill	$1,40,000
Over Valuation of Building	$30,000
Total	$6,70,000

Depreciation Expense

Particulars	Amount
Depreciation Expense of Mergaronite	$1,20,000
Depreciation Expense of Hill	$50,000
Depreciation on the over Valuation of Building	$3,000
Depreciation on undervalued Equuipment	$12,000
Total	$1,85,000

Additional paid in capital

Particular	Amount
Additional paid in capital of Mergaronite	$50,000
Total	$50,000

Note: Here we consider the additional paid in capital of parent company only. Because the Mergaronite tool over hill by issuing additional paid in capital in Mergaronite company.

Patent

Particulars	Amount
Patent value as on 2014	$1,00,000
Less : Amortization 2018	$5,000
Less : Amortization for 4 years	$20,000
Total	$75,000

Customer list development by Hill Inc, is consider as patent each year Amortization expense is ($100,000 /20) Amortization expense for ( 2014 , 2015,2016,2017) Value of customer list as on 31st December 2018.

Cost of Goods sold

Particulars	Amount
Cost of Goods sold of Mergaronite	$2,80,000
Cost of Goods sold of Hill	$1,00,000
Total	$3,80,000

Common Stock

Particulars	Amount
Common Stock of Mergaronite	$3,00,000
Total	$3,00,000

Note: Here we consider the common stock of parent company only. Because the Mergaronite took over hill by issuing common stock in Mergaronite company.

Equipment

Particulars	Amount
Equipment of Mergaronite	$2,00,000
Equipment of Hill	$2,50,000
Total	$4,50,000

Equipment that was undervalued by $60,000 need not do any adjustment. Equipment was undervalued on January 2014 and by the end of 2018 the 5 years period is completed

(B). Here we are not dealing with the parent's company investment account and there are no relprocity entries required to be posted. No adjustment are to be made on earnings on equity and dividends. Hence the method used by the parent company does not matters.

(C). Consolidation entries if parent company is using equity method

Elimination entry passed to Eliminate investment A/C in Subsidiary

Particulars	Amount	Amount
Retained Earnings A/C	$6,00,000
Common Stock	$40,000
Additional Paid in capital	$1,60,000
To Investment		$8,00,000
Land	$20,000
Equipment	$12,000
Customer list	$80,000
To Building net A/C		$18,000
To Investment in HIll A/C		$94,000
Investment in Hill	$40,000
To Dividend Paid		$40,000
Depreciation A/c	$12,000
Amortization A/c	$5,000
Building	$3,000
To Equipment A/c		$12,000
To Customer A/c		$5,000