Question

On January 1, 2018, Brooks Corporation exchanged $1,234,500 fair-value consideration for all of the outstanding voting...

On January 1, 2018, Brooks Corporation exchanged $1,234,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,102,500. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $312,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year.

In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.

On December 31, 2018, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.

Brooks Corp. Chandler Inc.
Income Statement
Revenues $ (497,500 ) $ (586,000 )
Cost of goods sold 209,000 177,000
Gain on bargain purchase (180,000 ) 0
Depreciation and amortization 146,000 157,000
Equity earnings from Chandler (200,000 ) 0
Net income $ (522,500 ) $ (252,000 )
Statement of Retained Earnings
Retained earnings, 1/1 $ (1,885,000 ) $ (802,500 )
Net income (above) (522,500 ) (252,000 )
Dividends declared 200,000 50,000
Retained earnings, 12/31 $ (2,207,500 ) $ (1,004,500 )
Balance Sheet
Current assets $ 233,000 $ 490,500
Investment in Chandler 1,564,500 0
Trademarks 133,000 257,000
Patented technology 379,000 419,000
Equipment 670,000 337,000
Total assets $ 2,979,500 $ 1,503,500
Liabilities $ (237,000 ) $ (199,000 )
Common stock (535,000 ) (300,000 )
Retained earnings, 12/31 (2,207,500 ) (1,004,500 )
Total liabilities and equity $ (2,979,500 ) $ (1,503,500 )

Note: Parentheses indicate a credit balance.

I need help with consolidation entires. This is an equity method problem.

Business   Accounting   
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Answer #1
Consolidation entries based on Equity Method:
On acquisition
01-01-2018 Investment in Affiliate Dr. $ 1414500
Bank Cr. $ 1234500
Gain on bargain purchase Cr. $ 180000
(Being investment made in Chandler Inc.)
Working Note: Book Value of outstanding voting stock of Chandler 1102500
Add: Undervaluation of Patented Technology Account 312000
Total Fair value of assets acquired 1414500
Less: Acquisition consideration 1234500
Gain on bargain purchase 180000
For payment of Dividend
31-12-2018 Bank Dr. $ 50000
Investment in Affiliate Cr. $ 50000
(Being Dividend received)
For consolidation of Income
31-12-2018 Investment in Affiliate Dr. $ 200000
Equity earnings from Chandler Cr. $ 200000
(Being net income from Chandler considered for consolidation)
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