Portsdown Company bought all of Speedwell Company's voting stock on January 1, 2020 for $125,000. Fair value information on Speedwell's assets and liabilities at the date of acquisition is as follows:
•Inventories are overvalued by $5,000. Speedwell uses FIFO to report its inventories, and acquisition-date inventories were sold in 2020.
•Property and equipment is overvalued by $20,000. P&E has a 10-year remaining life, straight-line.
•Liabilities are understated by $500. Assume a 5-year remaining life, and straight-line amortization of any premium/discount.
•Previously unreported identifiable intangibles are valued at $35,000. These intangibles have indefinite lives, but testing reveals impairment of $3,000 in 2020.
•Goodwill reported for this acquisition is not impaired in 2020.
Portsdown uses the complete equity method to account for its investment in Speedwell on its own books. Trial balances for both companies at December 31, 2020 are in the consolidation working paper that follows.
\(\begin{array}{|c|c|c|c|c|c|}
\hline & \begin{array}{c}
\text { Portsdown } \
\text { Dr (Cr) }
\end{array} & \begin{array}{c}
\text { Speedwell } \
\mathrm{Dr}(\mathrm{Cr})
\end{array} & \text { Dr } & \mathrm{Cr} & \begin{array}{l}
\text { Consol } \
\text { Dr (Cr) }
\end{array} \
\hline \text { Current assets } & \$ 15,000 & \$ 10,000 & & & \
\hline \text { Property and equipment, net } & 90,000 & 60,000 & & & \
\hline \text { Identifiable intangibles } & - & - & & & \
\hline \text { Investment in Speedwell } & 131,790 & - & & & \
\hline \text { Goodwill } & - & - & & & \
\hline \text { Liabilities } & (156,600) & (28,635) & & & \
\hline \text { Capital stock } & (40,000) & (15,000) & & & \
\hline \text { Retained earnings, Jan. } 1 & (29,000) & (23,500) & & & \
\hline \text { Accumulated OCl, Jan, } 1 & (1,000) & (175) & & & \
\hline \text { Sales revenue } & (84,000) & (50,000) & & & \
\hline \text { Equity in NI of Speedwell } & (6,750) & - & & & \
\hline \text { Equity in } \mathrm{OCl} \text { of Speedwell } & (40) & & & & \
\hline \text { Cost of goods sold } & 55,000 & 35,000 & & & \
\hline \text { Operating expenses } & 25,000 & 12,000 & & & \
\hline \text { Interest expense } & 750 & 350 & & & \
\hline \text { Other comprehensive income } & (150) & (40) & & & \
\hline \text { Total } & \$0 & \$0 & & & \
\hline
\end{array}\)
Required
a. Fill in the working paper as necessary to consolidate the trial balances of the two companies.
b. Compute the following consolidated balances:
(1) 2020 net income
(2) December 31, 2020 retained earnings
(3) 2020 comprehensive income
(4) December 31, 2020 accumulated other comprehensive income

Question

Portsdown Company bought all of Speedwell Company's voting stock on January 1, 2020 for $125,000. Fair value information on Speedwell's assets and liabilities at the date of acquisition is as follows:
•Inventories are overvalued by $5,000. Speedwell uses FIFO to report its inventories, and acquisition-date inventories were sold in 2020.
•Property and equipment is overvalued by $20,000. P&E has a 10-year remaining life, straight-line.
•Liabilities are understated by $500. Assume a 5-year remaining life, and straight-line amortization of any premium/discount.
•Previously unreported identifiable intangibles are valued at $35,000. These intangibles have indefinite lives, but testing reveals impairment of $3,000 in 2020.
•Goodwill reported for this acquisition is not impaired in 2020.
Portsdown uses the complete equity method to account for its investment in Speedwell on its own books. Trial balances for both companies at December 31, 2020 are in the consolidation working paper that follows.
 \(\begin{array}{|c|c|c|c|c|c|}
\hline & \begin{array}{c}
\text { Portsdown } \
\text { Dr (Cr) }
\end{array} & \begin{array}{c}
\text { Speedwell } \
\mathrm{Dr}(\mathrm{Cr})
\end{array} & \text { Dr } & \mathrm{Cr} & \begin{array}{l}
\text { Consol } \
\text { Dr (Cr) }
\end{array} \
\hline \text { Current assets } & \$ 15,000 & \$ 10,000 & & & \
\hline \text { Property and equipment, net } & 90,000 & 60,000 & & & \
\hline \text { Identifiable intangibles } & - & - & & & \
\hline \text { Investment in Speedwell } & 131,790 & - & & & \
\hline \text { Goodwill } & - & - & & & \
\hline \text { Liabilities } & (156,600) & (28,635) & & & \
\hline \text { Capital stock } & (40,000) & (15,000) & & & \
\hline \text { Retained earnings, Jan. } 1 & (29,000) & (23,500) & & & \
\hline \text { Accumulated OCl, Jan, } 1 & (1,000) & (175) & & & \
\hline \text { Sales revenue } & (84,000) & (50,000) & & & \
\hline \text { Equity in NI of Speedwell } & (6,750) & - & & & \
\hline \text { Equity in } \mathrm{OCl} \text { of Speedwell } & (40) & & & & \
\hline \text { Cost of goods sold } & 55,000 & 35,000 & & & \
\hline \text { Operating expenses } & 25,000 & 12,000 & & & \
\hline \text { Interest expense } & 750 & 350 & & & \
\hline \text { Other comprehensive income } & (150) & (40) & & & \
\hline \text { Total } & \$0 & \$0 & & & \
\hline
\end{array}\)
 Required
a. Fill in the working paper as necessary to consolidate the trial balances of the two companies.
b. Compute the following consolidated balances:
 (1) 2020 net income
 (2) December 31, 2020 retained earnings
 (3) 2020 comprehensive income
 (4) December 31, 2020 accumulated other comprehensive income

Quizplus · Accepted Answer

The Answer of Portsdown Company bought all of Speedwell Company's voting stock on January 1, 2020 for $125,000. Fair value information on Speedwell's assets and liabilities at the date of acquisition is as follows:
•Inventories are overvalued by $5,000. Speedwell uses FIFO to report its inventories, and acquisition-date inventories were sold in 2020.
•Property and equipment is overvalued by $20,000. P&E has a 10-year remaining life, straight-line.
•Liabilities are understated by $500. Assume a 5-year remaining life, and straight-line amortization of any premium/discount.
•Previously unreported identifiable intangibles are valued at $35,000. These intangibles have indefinite lives, but testing reveals impairment of $3,000 in 2020.
•Goodwill reported for this acquisition is not impaired in 2020.
Portsdown uses the complete equity method to account for its investment in Speedwell on its own books. Trial balances for both companies at December 31, 2020 are in the consolidation working paper that follows.
 \(\begin{array}{|c|c|c|c|c|c|}
\hline & \begin{array}{c}
\text { Portsdown } \
\text { Dr (Cr) }
\end{array} & \begin{array}{c}
\text { Speedwell } \
\mathrm{Dr}(\mathrm{Cr})
\end{array} & \text { Dr } & \mathrm{Cr} & \begin{array}{l}
\text { Consol } \
\text { Dr (Cr) }
\end{array} \
\hline \text { Current assets } & \$ 15,000 & \$ 10,000 & & & \
\hline \text { Property and equipment, net } & 90,000 & 60,000 & & & \
\hline \text { Identifiable intangibles } & - & - & & & \
\hline \text { Investment in Speedwell } & 131,790 & - & & & \
\hline \text { Goodwill } & - & - & & & \
\hline \text { Liabilities } & (156,600) & (28,635) & & & \
\hline \text { Capital stock } & (40,000) & (15,000) & & & \
\hline \text { Retained earnings, Jan. } 1 & (29,000) & (23,500) & & & \
\hline \text { Accumulated OCl, Jan, } 1 & (1,000) & (175) & & & \
\hline \text { Sales revenue } & (84,000) & (50,000) & & & \
\hline \text { Equity in NI of Speedwell } & (6,750) & - & & & \
\hline \text { Equity in } \mathrm{OCl} \text { of Speedwell } & (40) & & & & \
\hline \text { Cost of goods sold } & 55,000 & 35,000 & & & \
\hline \text { Operating expenses } & 25,000 & 12,000 & & & \
\hline \text { Interest expense } & 750 & 350 & & & \
\hline \text { Other comprehensive income } & (150) & (40) & & & \
\hline \text { Total } & \$0 & \$0 & & & \
\hline
\end{array}\)
 Required
a. Fill in the working paper as necessary to consolidate the trial balances of the two companies.
b. Compute the following consolidated balances:
 (1) 2020 net income
 (2) December 31, 2020 retained earnings
 (3) 2020 comprehensive income
 (4) December 31, 2020 accumulated other comprehensive income

Portsdown Company Bought All of Speedwell Company's Voting Stock on January