Paramount Corporation acquired its 75 percent investment in Sun Corporation in January 2012, for $2,910,000 and accounts for its investment internally using the complete equity method. At the acquisition date, total book value of Sun was $1,500,000 including $800,000 of retained earnings, and the estimated fair value of the 25 percent non-controlling interest was $790,000. The fair values of Sun's assets and liabilities were equal to their carrying values, except for the following items:

	Fair value less Book value
Accounts receivable	$(100,000)
Inventory	(125,000)
Equipment (10 years, straight-line)	(400,000)
Patents (5 years, straight-line)	200,000
Deferred tax liabilities (created as a result of the nontaxable acquisition)	75,000

The receivables were collected and the inventory sold during the first three years following the acquisition. Deferred tax liabilities of $60,000 were reversed during 2012–2017. An impairment test made at the end of 2017 indicates a remaining value of $2,000,000 for the goodwill recognized as a result of the acquisition. Sun's stockholders' equity is $2,500,000 including $1,800,000 of retained earnings, at the end of 2017.

Required
(a) Calculate the amount of goodwill initially recognized as a result of the acquisition, and its allocation to the controlling and non-controlling interests.

Allocation of goodwill
Goodwill	$Answer
Paramount’s share of goodwill:	$Answer
Noncontrolling interest’s share of goodwill	$Answer

(b) Calculate the balance in the investment account, carried on Paramount's books, and the value of the noncontrolling interest, reported in the equity section of the consolidated balance sheet, as of the end of 2017.

Balances as of 2017 year-end
Investment in Sun	$Answer
Noncontrolling interest in Sun	$Answer

(c) Assume eliminating entry (C), to reverse Paramount's equity method entries for 2018, has been made. Prepare 2018 eliminating entries (E) and (R) to adjust Sun's assets to the correct values as of the beginning of 2018, eliminate the remainder of the investment, and recognize the beginning-of-2018 value of the noncontrolling interest.

Consolidation Journal
Description	Debit	Credit
(E)
AnswerInvestment in SunGoodwillCashEquipment, netStockholders' equity-Sun	Answer	Answer
AnswerGoodwillEquipment, netStockholders' equity-SunInvestment in SunCash	Answer	Answer
Noncontrolling interest in Sun	Answer	Answer
(R)
AnswerGoodwillEquipment, netCashInvestment in SunStockholders' equity-Sun	Answer	Answer
Equipment, net	Answer	Answer
Deferred tax liabilities	Answer	Answer
AnswerCashEquipment, netInvestment in SunStockholders' equity-SunGoodwill	Answer	Answer
Noncontrolling interest in Sun	Answer	Answer

Answer rating: 100% (QA)

1 Paramounts acquisition cost 2910000 Fair value of noncontrolling interest 790000 Total 3700000 F... View the full answer