Problem 1: Consolidation Worksheet: Acquired Subsidiary (1)Alpha Company acquired all of Beta Company’s voting stock on

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Problem 1: Consolidation Worksheet: Acquired Subsidiary (1)Alpha
Company acquired all of Beta Company’s voting stock on 1/1/2017, by
issuing 10,000 shares of its $10 par value common stock (having a
fair value of $14 per share). As of that date, Beta had
stockholders’ equity totaling $105,000. Land shown on Beta’s
accounting records was undervalued by $10,000. Equipment (with
five-year remaining life) was undervalued by$5,000. A secret
formula developed by Beta was appraised at $20,000 with an
estimated life of 20 years. The worksheet on the next page contains
the separate financial statements for the two companies for the
year ending December 31, 2021. There were no intra-entity payables
on that date. Credit balances are indicated by parentheses.
Required: Answer the following questions based on the information
above and that in the worksheet:
1. Which accounting method did Alpha use to record its
investment in Beta? The equity method, the partial equity method,
or the cost method?
2. How much is Beta’s (acquisition-date) fair-value-based net
income of 2021?
3. Assume Alpha did not make additional investment in Beta
during 2017-2021. How much is Beta’s Retained Earnings account
balance at January 1, 2017, the date of its acquisition by
Alpha?
Income Statement
Alpha
Company
Beta
Company
Consolidation Entries
Consolidated
Totals
Dr.
Cr.
Revenues
(485,000)
(190,000)
Cost of goods sold
160,000
70,000
Depreciation expense
130,000
52,000
Amortization expense
-0-
-0-
Equity in Beta net income
(66,000)
-0-
Net Income
(261,000)
(68,000)
Statement of Retained Earnings
Retained earnings , 1/1/21
(659,000)
(98,000)
+ Net income
(261,000)
(68,000)
- Dividends declared
175,500
40,000
Retained earnings, 12/31/21
(744,500)
(126,000)
Balance Sheet
Current assets
268,000
75,000
Investment in Beta
216,000
-0-
Land
427,500
58,000
Buildings and equipment(net)
713,000
161,000
Formula
-0-
-0-
Goodwill
-0-
-0-
Total Assets
1,624,500
294,000
Current liabilities
(110,000)
(19,000)
Long-term liabilities
(80,000)
(84,000)
Common stock
(600,000)
(60,000)
Additional paid-in capital
(90,000)
(5,000)
Retained earnings, 12/31/21
(744,500)
(126,000)
Total Liabilities & Equity
(1,624,500)
(294,000)