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On January 1 2013 Top Company acquired all of Bottom Company’s outstanding common stock for $842000 in cash As of that date one of Bottom’s buildings with a 12-year remaining life was undervalued

On January 1, 2013, Top Company acquired all of Bottom Company’s outstanding common stock for $842,000 in cash. As of that date, one of Bottom’s buildings with a 12-year remaining life was undervalued on its financial records by $72,000. Equipment with a 10-year remaining life was undervalued, but only by $10,000. The book values of all of Bottom’s other assets and liabilities were equal to their fair values at that time except for an unrecorded licensing agreement with an assessed value of $40,000 and a 20-year remaining useful life. Bottom’s book value at the acquisition date was $720,000. During 2013, Bottom reported net income of $100,000 and declared $30,000 in dividends. Earnings were $120,000 in 2014 with $20,000 in dividends distributed by the subsidiary. As of December 31, 2015, the companies reported the following selected balances, which include all revenues and expenses for the year:

Required

a. If Top applies the equity method, what is its investment account balance as of December 31, 2015?

b. If Top applies the initial value method, what is its investment account balance as of December 31, 2015?

c. Regardless of the accounting method in use by Top, what are the consolidated totals as of December 31, 2015, for each of the following accounts?

d. Prepare the worksheet entries required on December 31, 2015, to consolidate the financial records of these two companies. Assume that Top applied the equity method to its investment account.

e. How would the worksheet entries in requirement (d) be altered if Top has used the initial value method?

Jul 23 2020 View more View Less

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