On January 20, 2020, Nike Inc. acquired 100% of Northface Co. in exchange for 25,000 of its common stock which was then trading for $45 per share. The acquisition agreement also contained a contingent consideration clause to which Nike assigned a fair value of $75,000.NorthFace book value on the acquisition date was $750,000; however Equipment with a 5 year life was undervalued by $75,000. Also, NorthFace held a patent valued at $250,000, although there was no book value for this asset because the cost of developing the patent had been expensed as R&D when incurred. The patented technology was expected to produce revenues for 10 years. Any remaining excess of the fair value of the acquisition over the fair value of identifiable assets and liabilities was attributed to Goodwill. During 2020 NorthFace reported Net Income of $180,000 and paid dividends to Nike of $90,000.

The following amounts come from the individual accounting records of the two companies as of December 31, 2021. Net Income of Nike is from its own operations and excludes any income from NorthFace.Nike

The following amounts come from the individual accounting records of the two companies as of December 31, 2021.  Net Income of Nike is from its own operations and excludes any income from NorthFace

                                                                                                               Nike                              Northface

                                                   Net Income                                        $625,000                         $200,000

                                                   Dividends Paid                                  $250,000                          $100,000

                                                   Equipment - Net                               $635,000                          $290,000 

1. How much goodwill was recorded in connection with the acquisition?

2. What is consolidated Net Income for the year ended December 31, 2021?

3. What is the consolidated balance for Equipment - Net, at December 31, 2021?

4. What balance does Nike "Investment in Northface" account show at December 31, 2021 when the equity method is applied.?

5. If Portland had used the Initial Value method, what adjustment is needed to the beginning balance or Retained Earnings (Entry *C) on a December 31, 2021 consolidation worksheet?

6. If Portland had used the Partial Equity method, what adjustment is needed to the beginning balance or Retained Earnings (Entry *C) on a December 31, 2021 consolidation worksheet?

Answer rating: 100% (QA)

1 Goodwill recorded in connection with the acquisition is 500000 Goodwill is calculated as the difference between the fair value of the acquired busin... View the full answer