Question

Parent Industries bought Subsidiary Inc.’s voting stock on January 1, 2019 for $42,000, when Subsidiary’s book...

  1. Parent Industries bought Subsidiary Inc.’s voting stock on January 1, 2019 for $42,000, when Subsidiary’s book value was $8,000. Fair value information on Subsidiary’s assets and liabilities at the date of acquisition is as follows:

  • Property and equipment (P&E) is overvalued by $7,000. P&E has a 10-year remaining life, straight-line.
  • Previously unreported identifiable intangibles are valued at $8,000. These intangibles have indefinite lives, but testing reveals impairment of $2,000 in 2019 and $1,000 impairment in 2020.
  • Goodwill reported for this acquisition is not impaired in 2019, but is impaired by $3,000 in 2020.

Parent uses the complete equity method to account for its investment in Subsidiary on its own books. It is now December 31, 2020, two years since the acquisition. The consolidation working paper at December 31, 2020, with the separate trial balances of Parent and Subsidiary is attached to this exam.

  1. Prepare a schedule calculating the initial value of goodwill for this acquisition. Show your work in detail.

  1. Calculate Parent’s equity in net income of Subsidiary for 2020. Show your work in detail.

c.          prepare the required entries to prepare consolidated financial statements at December 31, 2020.

Homework Answers

Answer #1

Solution a)

Initial value of the Goodwill at the time of the acquisition.

Fair value of Assets & liabilities = 8,000

Adjustments:-

Add:- Overvaluation of PPE = 7,000

Add:- Unrecorded Intangible asset book = 8,000

A. Fair value of the business   = 23,000

B. Purchase consideration   = 42,000

Initial value of goodwill (B-A) = 19,000

Solution b)

Value of the equity as on 31/12/2020

Subsidiary Book value (assume as same) = 8,000

PPE ( 7000 - 7000/10*2) (2 yr depretiation deducted) = 5,600

Unrecorded intangible asset (8,000- 2,000 -1,000) = 5,000

Goodwill (19,000 - 3,000)(impairement) = 16,000

Total value = $ 34,600

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the...
A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the date of acquisition was $2,000. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition: Fair Value – Book Value Inventories $ (200) FIFO, sold in 2019 Identifiable intangibles 5,000 Straight-line, 5 years Long-term debt   300 Straight-line, 2 years Goodwill recognized in the acquisition was unimpaired in 2019 but became fully impaired during 2020. The subsidiary did not declare...
Assume a parent company acquires 80% of the outstanding voting common stock of a subsidiary on...
Assume a parent company acquires 80% of the outstanding voting common stock of a subsidiary on January 1, 2018. One the acquisition date, the identifiable net assets of the subsidiary had fair value that approximately their recorded book value except for a paten, which had a fair value of $200,000 and not recorded book value. On the date of acquisition, the patent had five years of remaining useful life and the parent company amortizes its intangible assets using straight line...
Goodwill, Equity Method, Eliminating Entries, First Year On January 1, 2020, Playtel Inc. acquired 75 percent...
Goodwill, Equity Method, Eliminating Entries, First Year On January 1, 2020, Playtel Inc. acquired 75 percent of the stock of San Jose Cable for $200 million in cash. At the date of acquisition, the fair value of the noncontrolling interest was $50 million, and Playtel’s shareholders’ equity accounts were as follows (in thousands): Common stock, $1 par $5,000 Additional paid-in capital 25,000 Retained deficit (1,000) Treasury stock (800) Total $28,200 Both companies have a December 31 year-end. At the date...
1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s...
1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary’s books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment. REQUIRED: Prepare the consolidation eliminating entries for 2021
A subsidiary, Boston Corp., is wholely acquired by Massachusetts Co. on January 1, 2015 for $10...
A subsidiary, Boston Corp., is wholely acquired by Massachusetts Co. on January 1, 2015 for $10 million. The subsidiary’s book value at the date of acquisition was $2 million. Following is the information for the subsidiary’s identifiable net assets at the date of acquisition: Fair Value Excess Inventories is overvalued (i.e., book value > fair value): $ 200,000 FIFO Identifiable intangibles is undervalued: $ 5,000,000 Straight-line, 5 years Long-term debt is undervalued: $ 300,000 Straight-line, 2 years Inventories (based on...
A parent company acquires all of the outstanding common stock of its subsidiary for cash purchase...
A parent company acquires all of the outstanding common stock of its subsidiary for cash purchase price of $325,000. On the acquisition date, the subsidiary reported a book value of Stockholders’ Equity of $120,000, comprised of $50,000 of Common Stock and $70,000 of Retained Earnings. An examination of the subsidiary’s balance sheet revealed that book values were equal to fair value for all assets, expect for an unrecorded patent, which the parent valued at $160,000 during the acquisition. a.     What did...
Pratt Company acquired all of the voting stock of Swank Company on January 1, 2016 for...
Pratt Company acquired all of the voting stock of Swank Company on January 1, 2016 for $60,000. Swank Company’s book value at the date of acquisition totaled $8,000. Swank had previously unrecorded identifiable intangibles with a total fair value of $20,000, and plant assets were overvalued by $15,000. All of Swank’s other identifiable net assets had book values that approximated fair value at the date of acquisition. Goodwill arising from this acquisition equaled $47,000. The identifiable intangibles have an estimated...
Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value....
Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value. Of that excess, $350,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. The parent uses the equity method to account for its investment in its subsidiary. In 2021, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $244,000. Financial statements of the two companies for the year ended December 31,...
Parent acquired Subsidiary on January 1, 2016, at a price $300,000 in excess of book value....
Parent acquired Subsidiary on January 1, 2016, at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. The parent uses the equity method to account for its investment in its subsidiary. In 2017, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $145,000. Financial statements of the two companies for the year ended December 31,...
Assume that a parent company purchased less than 100% of the voting common stock when it...
Assume that a parent company purchased less than 100% of the voting common stock when it acquired a controlling interest in a subsidiary on August 15, 2019. The parent uses the equity method to account for the subsidiary on its pre-consolidation books. Both companies have a December 31, 2019 fiscal year end. Which of the following statements is correct? A.In the balance sheet prepared immediately after the acquisition, the parent company's pre-consolidation retained earnings will always equal consolidated retained earnings....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT