The Following Balance Sheets Have Been Prepared on December 31

question 6

Essay

The following balance sheets have been prepared on December 31, 2020 for Clarke Corp. and Jensen Inc.
Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Clarke } & \text { Jensen } \\\hline \text { Cash } & \$ 30,000 & \$ 20,000 \\\hline \text { Inventory } & \$ 70,000 & \$ 30,000 \\\hline \text { Accounts Receivable } & \$ 180,000 & \$ 70,000 \\\hline \text { Investment in Jensen } & \$ 200,000 & \\\hline \text { Fixed Assets } & \$ 500,000 & \$ 90,000 \\\hline \text { Accumulated Depreciation } & (\$ 280,000) & (\$ 30,000) \\\hline \text { Total Assets } & \$ 700,000 & \$ 180,000 \\\hline \text { Current Liabilities } & \$ 120,000 & \$ 60,000 \\\hline \text { Long-Term Debt } & \$ 400,000 & \$ 20,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 40,000 \\\hline \text { Retained Earnings } & \$ 90,000 & \$ 60,000 \\\hline \text { Liabilities and Equity } & \$ 700,000 & \$ 180,000\\\hline\end{array}$ Additional Information:
Clarke uses the cost method to account for its 50% interest in Jensen, which it acquired on January 1, 2017. On that date, Jensen's retained earnings were $20,000. The acquisition differential was fully amortized by the end of 2020.
Clarke sold Land to Jensen during 2019 and recorded a $15,000 gain on the sale. Clarke is still using this Land. Clarke's December 31, 2020 inventory contained a profit of $10,000 recorded by Jensen.
Jensen borrowed $20,000 from Clarke during 2020 interest-free. Jensen has not yet repaid any of its debt to Clarke.
Both companies are subject to a tax rate of 20%.
Prepare a Balance Sheet for Clarke on December 31, 2020 assuming that Clarke's Investment in Jensen is a joint venture investment and is reported using the equity method.

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Definitions:

Economic Loss

A situation where total costs exceed total revenues, leading to a negative profit.

Regulated Monopolist

A monopoly that operates under government regulation aiming to control pricing, supply, and standards of service to prevent exploitation of monopoly power.

Competitiveness of Markets

The degree of competition within a market, influencing pricing, product quality, and innovation.