Kellogg Company (Kellogg's) acquired 60% of the outstanding stock of Wholesome & Hearty Foods ("Wholesome") at the end of 2007 for cash and stock totaling $192 million. Assume that Wholesome's assets and liabilities were fairly reported at the date of acquisition, except for these items:

(in thousands)	Book Value	Fair Value
Plant & Equipment, net (10-year life, straight-line)	$240,000	$216,000
Secret cookie recipe (10-year life, straight-line)	0	40,000
Long-term debt (4-year life, straight-line)	48,000	54,400

Wholesome's book value at the date of acquisition was $118.4 million, and the fair value of the 40% noncontrolling interest was $56 million. It is now December 31, 2013 (the end of the sixth year since acquisition). Impairment testing on the goodwill arising in this acquisition reveals that total impairment during 2008-2012 is $3.2 million, and impairment in 2013 is $1.6 million.

Wholesome sells merchandise and raw materials to Kellogg's at a markup of 30% on cost. Here is information on these intercompany sales (in thousands):

Inventory, January 1, 2013, reported on Kellogg's books	$16,640
Inventory, December 31, 2013, reported on Kellogg's books	20,800
Transfer price for 2013 sales from Wholesome to Kellogg's	96,000

Below are the separate trial balances of Kellogg's and Wholesome at December 31, 2013.

	Dr(Cr)
(in thousands)	Kellogg's	Wholesome
Current assets	$56,000	$32,000
Plant and equipment, net	420,240	307,200
Investment in Wholesome	204,672	--
Identifiable intangibles	160,000	16,000
Current liabilities	(48,000)	(40,000)
Long-term debt	(560,000)	(160,000)
Capital stock	(128,000)	(86,400)
Retained earnings, January 1	(91,984)	(60,800)
Sales revenue	(640,000)	(224,000)
Equity in net income of Wholesome	(1,728)	--
Cost of sales	400,000	104,000
Operating expenses	228,800	112,000
Totals	$0	$0

In your answers below, present all numbers in thousands; round answers to the nearest thousand, if applicable. (a) Calculate the initial goodwill arising from this acquisition, and its allocation to the controlling and noncontrolling interests.

Goodwill (in thousands)
Total goodwill	Answer
Kellogg's goodwill	Answer
Goodwill to noncontrolling interest	Answer

(b) Prepare a schedule computing Kellogg's equity in net income of Wholesome and noncontrolling interest in net income for 2013.

Use negative signs with answers that reduce net income amounts.

(in thousands)	Total	Equity in net income of Wholesome	Noncontrolling interest in net income of Wholesome
Wholesome's reported net income for 2013	Answer	Answer	Answer
Revaluation writeoffs for 2013:
Plant & Equipment	Answer	Answer	Answer
Intangibles	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer
Intercompany sales adjustments:
Upstream beg. inventory profit confirmed	Answer	Answer	Answer
Upstream end. inventory profit unconfirmed	Answer	Answer	Answer
Total	Answer	Answer	Answer

(c) Prepare a working paper to consolidate the trial balances of Kellogg's and Wholesome at December 31, 2013.

Remember to use negative signs with your credit balance answers in the Consolidated Balances Dr(Cr) column.

Consolidation Working Paper
	Trial Balances Taken From Books	Eliminations
(in thousands)	Kellogg's Dr (Cr)	Wholesome Dr (Cr)		Debit	Credit		Consolidated Balances Dr (Cr)
Current assets	$56,000	$32,000			Answer	(I-3)	Answer
Plant and equipment, net	420,240	307,200	(O)	Answer	Answer	(R)	Answer
Investment in Wholesome	204,672	-			Answer	(C)	Answer
					Answer	(E)
					Answer	(R)
Identifiable intangibles	160,000	16,000	(R)	Answer	Answer	(O)	Answer
Goodwill	-	-	(R)	Answer	Answer	(O)	Answer
Current liabilities	(48,000)	(40,000)					Answer
Long-term debt	(560,0000)	(160,000)					Answer
Capital stock	(128,000)	(86,400)	(E)	Answer			Answer
Retained earnings, Jan. 1	(91,984)	(60,800)	(I-2)	Answer			Answer
			(E)	Answer
Noncontrolling interest					Answer	(E)	Answer
					Answer	(R)
					Answer	(N)
Sales revenue	(640,000)	(224,000)	(I-1)	Answer			Answer
Equity in NI of Wholesome	(1,728)	-	(C)	Answer			Answer
Cost of goods sold	400,000	104,000	(I-3)	Answer	Answer	(I-2)	Answer
					Answer	(I-1)
Operating expenses	228,800	112,000	(O)	Answer			Answer
Noncontrolling interest in NI	-	-	(N)	Answer	-		Answer
Total	$0	$0		Answer	Answer		Answer