Question

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 of acquisition, San Jose’s reported net assets had book values approximating fair value. However, it had previously unreported indefinite-life identifiable intangibles valued at $50 million, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $1 million. Goodwill from this acquisition was not impaired in 2020. San Jose reported net income of $4 million in 2020, and paid no dividends. Playtel uses the complete equity method to report its investment in San Jose on its own books.

Required

a. Calculate the original amount of goodwill for this acquisition and its allocation to the controlling and noncontrolling interest (in thousands).

b. Calculate equity in net income of San Jose, reported on Playtel’s books in 2020, and noncontrolling interest in net income, reported on the consolidated income statement (in thousands).

c. Prepare eliminating entries (C), (E), (R), (O) and (N), required to consolidate Playtel’s trial balance accounts with those of San Jose on December 31, 2020 (in thousands).

Answer 1

ANSWER

1)
Fair value of acquisition	250000
(200+50)
Less:Book value	28200
Excess of fair value over book value	221800
Allocated to
Intangibles	50000
Goodwill	171800
But to allocate you have to take 75% of Playtel
Fair value of acquisition	200000
Less:75% of book value (28200*75%)	21150
Excess of fair value over book value	178850
Allocated to
Intangibles(50000*75%)	37500
Goodwill	141350
so wwe allocate (your answer)
Total goodwill	171800
Allocated to
Playtel	141350
NCI	30450
2)
	Total	Equity in NI	NCI in NI
San Jose's reported net income	4000	3000	1000
Revaluation write offs:
Identifiable intangible assets	-1000	-750	-250
	3000	2250	750
3)
Description	Debit	Credit
Entry C
Equity in net income of San Jose	2250
Investment in San Jose		2250
Entry E
Common Stock	5000
Additional Paid in capital	25000
Retained deficit		1000
Treasury Stock		800
Investment in San Jose		21150
Noncontrolling interest in San Jose		7050
Entry R
Identifiale intangibles	50000
Goodwill	171800
Investment in San Jose		178850
Noncontrolling interest in San Jose		42950
Entry O
Impairement Losses	1000
Identifiable Intangibles		1000
Entry N
Noncontrolling interest in net income	750
Noncontrolling interst in San Jose		750

_____________________________________________

If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating.

*****************THANK YOU**************