Parent Inc acquired 20% of the outstanding shares of Son Company for $200,000 on 1/1/21. Son’s acquisition-date fair values for its assets and liabilities approximated their carrying amounts. Parent uses the equity method to account for the 20% investment in Son.

On 6/30/21, Parent paid $735,000 for an additional 75% ownership interest of Son. The price paid for the 75 percent ownership interest was proportionately representative of the fair value of all of Son’s shares. At 6/30, the carrying amounts of Son’s assets and liabilities approximated their fair values. Any remaining excess fair value was attributed to goodwill.

Son reports the following amounts at December 31, 2021.

Net Income - $138,000 (all revenues and expenses occurred evenly throughout the year).

Dividend Declared (on 9/15/21) – $30,000

Retained earnings 1/1/21 - $343,600

Common Stock - $500,000.

There are no changes in Son’s common stock account.

Requirements:

1. Calculate the revaluation gain (or loss) reported by Parent for its 20% investment in Son on 6/30/21 using the acquisition method. Show supporting calculations and label all the numbers in the calculation. Correct answer without supporting calculations receives 1 point on this problem.

2. Calculate the amount of goodwill recognized by Parent on its December 31 consolidated balance sheet (assume no impairments have been recognized). Show supporting calculations and label all the numbers in the calculation. Correct answer without supporting calculations receives 1 point on this problem.

Answer rating: 100% (QA)

1 Revaluation Gain 735000 200000 138000 30000 367000 2 Goodwill 735000 367000 500000 868000 EX... View the full answer