Data for PlanetTwo Communications and its wholly-owned subsidiary, Stage 4 Networks, are given below. PlanetTwo acquired Stage
Question:
Data for PlanetTwo Communications and its wholly-owned subsidiary, Stage 4 Networks, are given below. PlanetTwo acquired Stage 4 on January 1, 2013. PlanetTwo uses the complete equity method to report its investment in Stage 4, and its accounting year ends December 31.
(in thousands) | |
Acquisition cost | $25,000 |
Stage 4’s shareholders’ equity, January 1, 2013 | 5,000 |
Stage 4’s total reported net income, 2013–2020 | 10,000 |
Stage 4’s total dividends paid, 2013–2020 | 3,000 |
Stage 4’s reported net income, 2021 | 600 |
Dividends declared and paid by Stage 4, 2021 | 100 |
Allocation of excess of cost over book value to identifiable net assets, at acquisition date: | |
Land | (400) |
Buildings (20-year life, straight-line) | (1,000) |
Identifiable intangibles (5-year life) | 4,000 |
Long-term debt discount (10 years to maturity as of January 1, 2013 | 200 |
Goodwill impairment loss, 2013–2020 | 300 |
Goodwill impairment loss, 2021 | 60 |
Required
a. Calculate the original goodwill reported for this acquisition.
$Answer (in thousands)
b. Calculate the equity in net income for 2021, reported on PlanetTwo’s books, using the complete equity method.
$Answer (in thousands)
c. Calculate the balance in Investment in Stage 4 Networks at December 31, 2021, reported on PlanetTwo’s books.
$Answer (in thousands)
d. Prepare the eliminating entries necessary to consolidate the financial statements of PlanetTwo and Stage 4 for 2021.
Enter answers in thousands.
Ref. | Description | | Debit | Credit |
---|---|---|---|---|
(C) | AnswerEquity in net income of Stage 4Dividends - Stage 4Shareholders' equity - Stage 4Investment in Stage 4 | | Answer | Answer |
| AnswerEquity in net income of Stage 4Dividends - Stage 4Shareholders' equity - Stage 4Investment in Stage 4 | | Answer | Answer |
| Investment in Stage 4 | | Answer | Answer |
| | | | |
(E) | AnswerEquity in net income of Stage 4Dividends - Stage 4Shareholders' equity - Stage 4Investment in Stage 4 | | Answer | Answer |
| AnswerEquity in net income of Stage 4Dividends - Stage 4Shareholders' equity - Stage 4Investment in Stage 4 | | Answer | Answer |
| | | | |
(R) | AnswerBuildings,netLandLong-term debt | | Answer | Answer |
| AnswerBuildings,netGoodwillLand | | Answer | Answer |
| AnswerGoodwillLandLong-term debt | | Answer | Answer |
| AnswerBuildings,netDepreciation expenseGoodwill | | Answer | Answer |
| Investment in Stage 4 | | Answer | Answer |
| | | | |
(O) | AnswerGoodwillInterest expenseLong-term debt | | Answer | Answer |
| AnswerBuildings, netDepreciation expenseGoodwill | | Answer | Answer |
| AnswerDepreciation expenseGoodwillGoodwill impairment loss | | Answer | Answer |
| AnswerGoodwill impairment lossInterest expenseLong-term debt | | Answer | Answer |
| AnswerBuildings, netDepreciation expenseGoodwill impairment loss | | Answer | Answer |
| AnswerGoodwillGoodwill impairment lossInterest expense | | Answer | Answer |
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer