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    Calculations Based on Account Balances

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    21. Jefferson, Inc., purchases Hamilton Corporation on January 1, 2004. Immediately after the acquisition, the two companies have the following account balances. Hamilton's equipment (with a five year life) is actually worth $450,000. Any goodwill is considered to have an indefinite life.

    Jefferson Hamilton
    Current assets . . . . . . . . . . . . . . . . . . . $300,000 $210,000
    Investment in Hamilton . . . . . . . . . . . . 510,000
    Equipment . . . . . . . . . . . . . . . . . . . . . 600,000 400,000
    Liabilities . . . . . . . . . . . . . . . . . . . . . . . 200,000 160,000
    Common stock . . . . . . . . . . . . . . . . . . 350,000 150,000
    Retained earnings . . . . . . . . . . . . . . . . 860,000 300,000

    In 2004, Hamilton earns a net income of $55,000 and pays a $5,000 cash dividend. At the end of 2005, selected account balances for the two companies are as follows:

    Jefferson Hamilton
    Revenues . . . . . . . . . . . . . . . . . . . . . . $400,000 $240,000
    Expenses . . . . . . . . . . . . . . . . . . . . . . . 290,000 180,000
    Investment income . . . . . . . . . . . . . . . not given
    Retained earnings, 1/1/05 . . . . . . . . . . not given 350,000
    Common stock . . . . . . . . . . . . . . . . . . 350,000 150,000
    Current assets . . . . . . . . . . . . . . . . . . . 360,000 140,000
    Investment in Hamilton . . . . . . . . . . . . not given
    Equipment . . . . . . . . . . . . . . . . . . . . . 520,000 420,000
    Liabilities . . . . . . . . . . . . . . . . . . . . . . . 170,000 190,000

    a. What will be the December 31, 2005, balance in the Investment Income account and the Investment in Hamilton account under each of the three methods described in this chapter?
    b. How is the consolidated Expense account affected by the accounting method used by the parent to record ownership of this subsidiary?
    c. How is the consolidated Equipment account affected by the accounting method used by the parent to record ownership of this subsidiary?
    d. What is Jefferson's Retained Earnings balance as of January 1, 2005, under each of the three methods described in this chapter?
    e. What is Entry *C on a consolidation worksheet for 2005 under each of the three methods described in this chapter?
    f. What is Entry S on a consolidation worksheet for 2005 under each of the three methods described in this chapter?
    g. What is consolidated net income for 2005?

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    https://brainmass.com/business/accounting/calculations-based-on-account-balances-91429

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    This solution involves various calculations for various questions involving a company's account balance.

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