Adams Inc acquires Clay Corporation on January 1 2012 in

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Adams, Inc., acquires Clay Corporation on January 1, 2012, in exchange for $510,000 cash.
Immediately after the acquisition, the two companies have the following account balances.
Clay's equipment (with a five-year life) is actually worth $440,000. Credit balances are indicated
by parentheses.______________________________________Adams ____________
ClayCurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 300,000 . . . . . . . . . . $ 220,000Investment
in Clay . . . . . . . . . . . . . . . . . . . . . . 510,000 . . . . . . . . . . . . . . . -0-Equipment . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 600,000 . . . . . . . . . . . 390,000Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(200,000) . . . . . . . . . . (160,000)Common stock . . . . . . . . . . . . . . . . . . . . . . . . . (350,000) . . . . .
. . . . . (150,000)Retained earnings, 1/1/12 . . . . . . . . . . . . . . . . (860,000) . . . . . . . . . .
(300,000)In 2012, Clay earns a net income of $55,000 and pays a $5,000 cash dividend. In
2012, Adams reports income from its own operations (exclusive of any income from Clay) of
$125,000 and declares no dividends. At the end of 2013, selected account balances for the two
companies are as follows:a. What are the December 31, 2013, Investment Income and
Investment in Clay account balancesassuming Adams uses the:1. Equity method.2. Initial value
method.b. How does the parent's internal investment accounting method choice affect the
amount reported for expenses in its December 31, 2013, consolidated income statement?c.
How does the parent's internal investment accounting method choice affect the amount reported
for equipment in its December 31, 2013, consolidated balance sheet?d. What is Adams's
January 1, 2013, Retained Earnings account balance assuming Adams accounts for its
investment in Clay using the:1. Equity value method.2. Initial value method.e. What worksheet
adjustment to Adams's January 1, 2013, Retained Earnings account balance is required if
Adams accounts for its investment in Clay using the initial value method?f. Prepare the
worksheet entry to eliminate Clay's stockholders' equity.g. What is consolidated net income for
2013?View Solution:
Adams Inc acquires Clay Corporation on January 1 2012 in

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