Company P acquired a 75% interest in Company S on January 1st, 2014. Shareholders of Company S received $1,200,000 pertaining to the 75% interest. The remaining 25% shares had a market value of $400,000 around the acquisition date (i.e., right before and right after Jan 1st, 2014).

On the day of acquisition, Company S reported Common Stock of $800,000, Additional Paid-In Capital of $200,000 and Retained Earnings of $250,000. The fair values of assets were equal to book values except for a building that was undervalued by a total of $100,000 with 10 years of remaining useful life.

In 2014, 2015, and 2016 Company S reported Net Income of $80,000, $110,000, and $160,000 and dividends of $10,000, $20,000, and $30,000 respectively. The amounts are assumed to have occurred evenly throughout each year.

A. What is the amount of goodwill that should be recognized on the day of acquisition? Be sure to show the steps.

B. Show the journal entries that Company P should record for the acquisition.

C. What is the basic consolidation entry that would be prepared if a consolidated balance sheet needed to be prepared on January 1st, 2014?

D. What amounts of Income from S and Investment in S would appear on Company P’s income statement on December 31, 2014? What are the worksheet entries required for consolidation?

E. What is the basic consolidation and/or reclassification entry(ies) that would be prepared on December 31, 2014? What is the purpose of the entry(ies)?

F. Without using the worksheet, how would you determine consolidated net income attributable to the controlling interest in 2015? (this is asking you to give a strategy or process to determine the number, NOT what the number is).

G. On December 31, 2015, the balance sheets of Company P and Company S had buildings with book values of $550,000 and $250,000 respectively. What is the consolidated balance for the Buildings for that year?

H. Describe the process for preparing the basic consolidation and/or reclassification entry(ies) for December 31, 2015. Your description should allow an accounting student who hasn’t taken Advanced Accounting to prepare the entry. Show the basic consolidation entry.

I. On December 31, 2016, Company P reported Common Stock of $2,000,000, Additional Paid-in Capital of $1,500,000, and Retained earnings of $6,0000,000. What are the consolidated balances for each of the accounts assuming the parent uses the full equity method for its investment?

J. Assume Company P sells 15% of its shares of Company S on June 30th, 2016, and receives $300,000 cash. What is the amount of the gain or loss on the sale? How much does Company P record as equity income from S in 2016?

Answer rating: 100% (QA)

A To calculate the amount of goodwill recognized on the day of acquisition we need to follow these steps 1 Calculate the fair value of the identifiable net assets acquired Fair value of Common Stock 8... View the full answer