On December 31, 2020, Petra Company invests $20,000 in Valery, a variable interest entity. In contractual agreements completed on that date, Petra established itself as the primary beneficiary of Valery. Previously, Petra had no equity interest in Valery. Immediately after Petra’s investment, Valery presents the following balance sheet:

Each of the amounts represents an assessed fair value at December 31, 2020, except for the marketing software. The December 31 business fair value of Valery is assessed at $80,000.

a. If the carrying amount of the marketing software was undervalued by $25,000, what amounts for Valery would appear in Petra’s December 31, 2020, consolidated financial statements?

b. If the carrying amount of the marketing software was overvalued by $25,000, what amounts for Valery would appear in Petra’s December 31, 2020, consolidated financial statements?

Transcribed Image Text:

$ 20,000 Long-term debt Noncontrolling interest Petra equity interest Cash $120,000 Marketing software Computer equipment 140,000 60,000 40,000 20,000 Total assets $200,000 Total liabilities and equity $200,000