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Presentation/PPT
27/08/2022
Pratt Company acquired all of the voting stock of Swank Company on January 1, 2016 for $60,000. Swank Company’s book value at the date of acquisition totaled $8,000. Swank had previously unrecorded identifiable intangibles with a total fair value of $20,000, and plant assets were overvalued by $15,000. All of Swank’s other identifiable net assets had book values that approximated fair value at the date of acquisition. Goodwill arising from this acquisition equaled $47,000.
The identifiable intangibles have an estimated life of 5 years as of the date of acquisition, and the plant assets have an estimated life of 20 years, straight-line. There is no goodwill impairment.
It is now December 31, 2018(three years since the date of acquisition). The December 31, 2018 preclosing trial balances of both companies appear on the consolidation working paper below. Pratt uses the complete equity method to account for its investment in Swank.
Information on intercompany transactions is as follows:
1. Pratt sells merchandise to Swank at a markup of 25% on cost. Swank’s inventory at January 1, 2018 contains $875 in merchandise purchased from Pratt. Swank’s inventory at December 31, 2018 contains $1,125 in merchandise purchased from Pratt. Total sales from Pratt to Swank during 2018 were $20,000.
Pratt
Dr (Cr)
Swank
Dr (Cr)
Dr
Cr
Consol
Dr (Cr)
Current assets
$ 16,000
$ 6,600
Plant assets (net)
124,000
72,000
Investment in Swank
65,225
—
A
Identifiable intangibles
—
—
B
Goodwill
—
—
C
D
Liabilities
(161,025)
(55,000)
Capital stock
(14,000)
(2,000)
E
Retained earnings, Jan. 1
(30,000)
(16,500)
F
AOCI, Jan. 1
(2,000)
(1,500)
Sales revenue
(95,000)
(35,000)
G
Equity in net income of Swank
(400)
—
H
—
Equity in OCI of Swank
(100)
—
—
Cost of goods sold
62,000
23,000
Operating expenses
35,000
8,500
I
Other comprehensive (income) loss
300
(100)
Total
$ 0
$ 0
$ 0
Required (examples follow)
1) Fill in the missing letters as noted on the consolidation working paper at December 31, 2018.
2) Briefly explain the rationale for the numbers selected in part 1.
Both an amount and an explanation are required.
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