Required:

A) Calculate the initial goodwill arising from this acquisition, and its allocation to the controlling and noncontrolling interests.

B) Prepare a schedule computings Parent's equity in net income of Subsidiary and noncontrolling interest in net income for 2020.

C) Prepare a working paper to consolidate the trial balances of Parent and Subsidiary at December 31, 2020.
 

Transcribed Image Text:

Consolidation Working Paper, Noncontrolling Interest, Intercompany Merchandise Transactions Parent Company acquired 65% of the outstanding stock of Subsidiary Company on December 31, 2017 for cash and stock totaling $84,800. Assume that Subsidiary's assets and liabilities were fairly reported at the date of acquisition, except for these items: Book Value Plant & Equipment, net (12-year life, straight-line) Veggie Burger recipe (8-year life, straight-line) Long-term debt (5-year life, straight-line) 3 1 D 1 Subsidiary's book value at the date of acquisition was $59,200, and the fair value of the 35% 2 noncontrolling interest was $39,200. It is now December 31, 2020 (the end of the 3rd year $ 3 since acquisition). Impairment testing on the goodwill reveals that total impairment 4 during 2018-2019 is $1,600, and impairment in 2020 is $500. Current assets Plant and equipment, net Investment in Subsidiary Identifiable intangibles 6 Subsidiary sells merchandise and raw materials to Parent's at a markup of 25% on cost. 7 Here is information on these intercompany sales: B Inventory, January 01, 2020, reported on Parent's books $ 9 Inventory, December 31, 2020, reported on Parent's books D Transfer price for 2020 sales from Subsidiary to Parent's 1 Current liabilities Long-term debt Capital stock Retained earnings, January 1 Dividends Sales revenue Equity in net income of Subsidiary Cost of sales Operating expenses 120,000 $ 2 Below are the separate trial balances of Parent's and Subsidiary at December 31, 2020. 3 4 5 5 7 B 9 D 1 2 3 4 5 5 7 3 Totals 9 $ 0 24,000 $ 5 (c) Prepare a working paper to consolidate the trial balances of Parent and 5 Subsidiary at December 31, 2020. 3 8,500 10,400 48,000 Parent Required: 1 (a) Calculate the initial goodwill arising from this acquisition, and its allocation to 2 the controlling and noncontrolling interests. 3 (b) Prepare a schedule computing Parent's equity in net income of Subsidiary and 4 noncontrolling interest in net income for 2020. Dr(Cr) 26,800 $ 210,120 91,179 80,000 (24,000) (280,000) (64,000) (35,465) 2,400 (320,000) (1,434) 200,000 114,400 0 $ Fair Value 108,000 20,000 27,200 Subsidiary 14,400 153,600 0 8,000 (20,000) (80,000) (43,200) (30,400) 1,600 (112,000) 0 52,000 56,000 0 Consolidation Working Paper, Noncontrolling Interest, Intercompany Merchandise Transactions Parent Company acquired 65% of the outstanding stock of Subsidiary Company on December 31, 2017 for cash and stock totaling $84,800. Assume that Subsidiary's assets and liabilities were fairly reported at the date of acquisition, except for these items: Book Value Plant & Equipment, net (12-year life, straight-line) Veggie Burger recipe (8-year life, straight-line) Long-term debt (5-year life, straight-line) 3 1 D 1 Subsidiary's book value at the date of acquisition was $59,200, and the fair value of the 35% 2 noncontrolling interest was $39,200. It is now December 31, 2020 (the end of the 3rd year $ 3 since acquisition). Impairment testing on the goodwill reveals that total impairment 4 during 2018-2019 is $1,600, and impairment in 2020 is $500. Current assets Plant and equipment, net Investment in Subsidiary Identifiable intangibles 6 Subsidiary sells merchandise and raw materials to Parent's at a markup of 25% on cost. 7 Here is information on these intercompany sales: B Inventory, January 01, 2020, reported on Parent's books $ 9 Inventory, December 31, 2020, reported on Parent's books D Transfer price for 2020 sales from Subsidiary to Parent's 1 Current liabilities Long-term debt Capital stock Retained earnings, January 1 Dividends Sales revenue Equity in net income of Subsidiary Cost of sales Operating expenses 120,000 $ 2 Below are the separate trial balances of Parent's and Subsidiary at December 31, 2020. 3 4 5 5 7 B 9 D 1 2 3 4 5 5 7 3 Totals 9 $ 0 24,000 $ 5 (c) Prepare a working paper to consolidate the trial balances of Parent and 5 Subsidiary at December 31, 2020. 3 8,500 10,400 48,000 Parent Required: 1 (a) Calculate the initial goodwill arising from this acquisition, and its allocation to 2 the controlling and noncontrolling interests. 3 (b) Prepare a schedule computing Parent's equity in net income of Subsidiary and 4 noncontrolling interest in net income for 2020. Dr(Cr) 26,800 $ 210,120 91,179 80,000 (24,000) (280,000) (64,000) (35,465) 2,400 (320,000) (1,434) 200,000 114,400 0 $ Fair Value 108,000 20,000 27,200 Subsidiary 14,400 153,600 0 8,000 (20,000) (80,000) (43,200) (30,400) 1,600 (112,000) 0 52,000 56,000 0

Answer rating: 100% (QA)

ANSWER a Calculation of initial goodwill and its allocation to controlling and noncontrolling interests Consideration transferred Cash Stock 84800 Fai... View the full answer