The December 31, 2018, trial balances for the parent and subsidiary follow — January 2017 Hi-Speed com acquired 100 percent common stock Wi-Free cash 730

On January 1, 2017, Hi-Speed.com acquired 100 percent of the common stock of Wi-Free Co. for cash of $730,000. The consideration transferred was allocated among Wi-Free’s net assets as follows:

At the acquisition date, the computer software had a 4-year remaining life, and the Internet domain name was estimated to have a 10-year remaining life. By the end of 2017, it became clear that the acquired in-process research and development would yield no economic benefits and Hi-Speed.com recognized an impairment loss. At December 31, 2018, Wi-Free’s accounts payable included a $30,000 amount owed to Hi-Speed.

The December 31, 2018, trial balances for the parent and subsidiary follow:

Required

a. Using Excel, prepare calculations showing how Hi-Speed derived the $856,000 amount for its investment in Wi-Free.

b. Using Excel, compute consolidated balances for Hi-Speed and Wi-Free. Either use a worksheet approach or compute the balances directly.

SOLUTION

Part a: Investment in Wi-Free account balance 12/31/18

Wi-Free’sacquisition-date fair value $730,000

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Revenues	(1,100,000)	(325,000)			(1,425,000)
Cost of goods sold	625,000	122,000			747,000
Depreciation expense	140,000	12,000			152,000
Amortization expense	50,000	11,000	(E) 12,000	(E)7,500	65,500
Equity in subsidiary earnings	(175,500)	-0-	(I)175,500		-0-
Net Income	(460,500)	(180,000)			(460,500)
Retained earnings 1/1	(1,552,500)	(450,000)	(S)450,000		(1,552,500)
Net income	(460,500)	(180,000)			(460,500)
Dividends declared	250,000	50,000		(D) 50,000	250,000
Retained earnings 12/31	(1,763,000)	(580,000)			(1,763,000)
Current assets	1,034,000	345,000		(P) 30,000	1,349,000
Investment in Wi-Free	856,000		(D) 50,000	(I) 175,500
				(S)580,000
				(A)150,500	0
Equipment (net)	713,000	305,000			1,018,000
Computer software	650,000	130,000	(E) 7,500	(A) 22,500	765,000
Internet domain name	0	100,000	(A)108,000	(E) 12,000	196,000
Goodwill	-0-	-0-	(A) 65,000		65,000
Total assets	3,253,000	880,000			3,393,000
Liabilities	(870,000)	(170,000)	(P) 30,000		(1,010,000)
Common stock	(500,000)	(110,000)	(S)110,000		(500,000)
Additional paid-in capital	(120,000)	(20,000)	(S) 20,000		(120,000)
Retained earnings 12/31	(1,763,000)	(580,000)			(1,763,000)
Total liab. and equity	(3,253,000)	(880,000)	1,028,000	1,028,000	(3,393,000)