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.
c. prepare the required entries to prepare consolidated financial statements at December 31, 2020.
Initial value of the Goodwill at the time of the acquisition.
Fair value of Assets & liabilities = 8,000
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
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
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