Mojito Corporation acquired 80% of the outstanding stock of Dulcinea, Inc., on January 1, 2017, for $1,950,000 in cash. The remaining 20% of Dulcinea’s stock traded actively at the same price as Mojito paid. The book value of Dulcinea, Inc. at the acquisition date was $1,865,000. One of Dulcinea’s buildings, with a 14-year remaining life, was undervalued in the company’s accounting records by $140,000. Also, Dulcinea’s newly developed patent, with an estimated 10-year life, was assessed to have a fair value of $365,000. During subsequent years, Dulcinea reports the following:
Net Income Dividends
2017 $225,000 $100,000
2018 $250,000 $110,000
2019 $295,000 $115,000
The following trial balances are for these two companies as of December 31, 2020.
|
Mojito |
Dulcinea |
|
|
Debits |
||
|
Cash |
$376,000 |
$290,000 |
|
Receivables |
530,000 |
334,000 |
|
Inventory |
750,000 |
401,000 |
|
Investment in Dulcinea |
2,321,200 |
0 |
|
Land |
670,000 |
585,000 |
|
Buildings (net) |
835,000 |
725,000 |
|
Equipment (net) |
350,000 |
285,000 |
|
Operating expenses |
450,000 |
200,000 |
|
Dividends paid |
245,000 |
120,000 |
|
Total debits |
$6,527,200 |
$2,940,000 |
|
Credits |
||
|
Liabilities |
285,000 |
105,000 |
|
Common stock |
750,000 |
40,000 |
|
Additional paid-in capital |
1,660,250 |
410,000 |
|
Retained earnings, 1/1/19 |
2,730,150 |
1,860,000 |
|
Revenues |
879,000 |
525,000 |
|
Investment Income |
222,800 |
0 |
|
Total Credits |
$6,527,200 |
$2,940,000 |
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