Question

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several...

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted.

                                                   Green          Vega

Revenues                               $ 900,000 $ 500,000

Cost of goods sold                   360,000    200,000

Depreciation expense              140,000      40,000

Other expenses                        100,000        60,000

Equity in Vega’s income             ?

Retained earnings, 1/1/2023 1,350,000 1,200,000

Dividends                                 195,000      80,000

Current assets                         300,000 1,380,000

Land                                        450,000    180,000

Building (net)                          750,000       280,000

Equipment (net)                       300,000    500,000

Liabilities                                600,000     620,000

Common stock                        450,000        80,000

Additional paid-in capital         75,000     320,000

Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.

Assuming Green uses equity method, compute the December 31, 2023 consolidated retained earnings.

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Answer #1

Calculation of consolidated retained earnings as on December 31, 2023

Income of Green= 900,000 - 360,000 - 140,000 - 100,000 = $300,000

income of vega =  500,000 - 200,000 - (40,000 - 1,500 + 8,000) - (60,000 + 3,125) = $190,375

now, to calculate consolidated retained earnings:

retained earning at the beginning= 1,350,000

(+)green's income= 300,000

(+)vega's income = 190,375

less: dividend =  (195,000)

Consolidated retained earning= $1,645,375

so, AS per the question consolidated retained earnings as on December 31, 2023 is $1,645,375

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