Compute consolidated balances for hi-speed

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Reference no: EM13503621

On January 1, 2010, 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:

Wi-Free fair value (cash paid by Hi-Speed)

$730,000

Book value of Wi-Free:

Common stock and APIC

$130,000

Retained earnings

370,000

500,000

Excess fair value over book value to

$230,000

In-process R&D

75,000

Computer software (overvalued)

30,000

Internet domain name

120,000

165,000

Goodwill

$65,000

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 life. By the end of 2010, it became clear that the acquired inprocess research and development would yield no economic benefits and Hi-Speed.com recognized an impairment loss. At December 31, 2011, Wi-Free's accounts payable include a $30,000 amount owed to Hi-Speed. The December 31, 2011, trial balances for the parent and subsidiary follow:

Hi-Speed.com

Wi-Free Co.

Revenues

($1,100,000)

($325,000)

Cost of goods sold

625,000

122,000

Depreciation expense

140,000

12,000

Amortization expense

50,000

11,000

Equity in subsidiary earnings

175,500

-0-

Net income

($460,500)

($180,000)

Retained earnings 1/1/11

($1,552,500)

($450,000)

Net income

-460,500

-180,000

Dividends paid

250,000

50,000

Retained earnings 12/31/11

($1,763,000)

($580,000)

Current assets

$1,034,000

$345,000

Investment in Wi-Free

856,000

-0-

Equipment (net)

713,000

305,000

Computer software

650,000

130,000

Internet domain name

-0-

100,000

Goodwill

-0-

-0-

Total assets

$3,253,000

$880,000

Liabilities

($870,000)

($170,000)

Common stock

500,000

110,000

Additional paid-in capital

120,000

20,000

Retained earnings 12/31/11

1,763,000

580,000

Total liabilities and equity

($3,253,000)

($880,000)

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.

Reference no: EM13503621

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