Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 8

Following are separate financial statements of Michael Company and Aaron Companyas ofDecember 31,2013 (credit balances indicated by parentheses).Michael acquiredall of Aaron'soutstanding voting stock on January 1,2009, by issuing 20,000 shares of its own $1 parcommonstock.On the acquisition date, Michael Company's stock actively traded at $23.50 per share. On the date of acquisition, Aaron reported retained earnings of $230,000 and a total book value of $360,000.At that time, its royalty agreements were undervalued by $60,000.This in­tangible was assumed to have a six-year life with no residual value.Additionally, Aaron owned a trademark with a fair value of $50,000 and a 10-year remaining life that was not reflected on its books.
a. Using the preceding information, prepare a consolidation worksheet for these two compa­nies as of December 31,2013.
b. Assuming that Michael applied the equity method to this investment, what account bal­ances would differ on the parent's individual financial statements
c. Assuming that Michael applied the equity method to this investment, what changes would be necessary in the consolidation entries found on a December 31,2013, worksheet
d. Assuming that Michael applied the equity method to this investment, what changes would be created in the consolidated figures to be reported by this combination