Part 2: Consolidation - Equity Method Assume that Pauly D Company obtains all of the outstanding common stock of Snooki Company on January 1, 2020. Pauly D acquires this stock for $1,000,000 in cash. The book values as well as the appraised fair values of Snooki's accounts follow: Book Values 1/1/20 Fair Values 1/1/20 Difference Current Assets 350,000 350,000 - Trademarks (indefinite life) 240,000 260,000 20,000 Patented technology (10 yr remaining life) 310,000 450,000 140,000 Equipment (5 year remaining life) 190,000 140,000 (50,000) Liabilities (400,000) (400,000) - Net book value $690,000 $800,000 $110,000 Common Stock $40 par value (270,000) Additional paid-in-capital (20,000) Retained earnings, 1/1/20 (400,000) Pauly D considers the economic life of Snooki's trademarks as having an indefinite life. For definite lived assets acquired in the combination, we assume straight-line amortization and depreciation with no salvage value. Step 1:Perform an Allocation of Purchase Price and identify if Pauly D should recognize Goodwill or a Gain on Bargain Purchase (10 pts) Consideration Transferred Book Value of Snooki Excess FV over Book Value - Allocation to specific accounts based on fair values: - $- Step 2: Fill in the Amortization Schedule and calculate the annual amoritzation (10 pts) Account Allocation Remaining Useful Life Annual Excess Amortization Total Annual Amortization: $- Step 3: Journal Entries for Pauly D Company for FY20 (10 pts) Assume that Snooki earns income of $150,000 during the year, declares a $50,000 cash dividend on September 1, and pays that dividend on September 8. make all the necessary journal entries for Pauly D Company's Investment in Snooki Company for FY20. Account Debit Credit Step 4: make all consolidation entries needed and the consolidated financials as of 12/31/20. (25 pts) Accounts Pauly D Co. Snooki Co. Debits Credits Consolidated Statements Income Statement Revenues (1,500,000) (450,000) COGS 700,000 232,000 Amortization Expense 120,000 32,000 E Depreciation Expense 80,000 36,000 E Equity in Subsidiary Earnings - I Net Income (600,000) (150,000) - Stmt of Ret. Earnings Retained Earnings, 1/1 (840,000) (400,000) S Net Income (above) (600,000) (150,000) Dividends Declared 120,000 50,000 D Retained Earnings, 12/31 (1,320,000) (500,000) - Balance Sheet Current Assets 1,000,000 450,000 Invetment in Sun - D S A I Trademarks 600,000 240,000 A Patented technology 370,000 310,000 A E Equipment (net) 250,000 190,000 E A Goodwill - - A Total Assets 2,220,000 1,190,000 - Liabilities (980,000) (400,000) Common Stock (750,000) (270,000) S Additional Paid in Cap (120,000) (20,000) S Retained Earnings, 12/31 (1,320,000) (500,000) Total Liab + OE. (3,170,000) (1,190,000) - - -