Question

Posit Company has a financial relationship with Sparkle Inc., a separate legal entity, but does not...

Posit Company has a financial relationship with Sparkle Inc., a separate legal entity, but does not own any of Sparkle's voting stock. On January 1, 2020, Posit determines that Sparkle is a variable interest entity and that Posit is Sparkle's prime beneficiary. Sparkle's shareholders' equity on January 1, 2020 is as follows:

Capital stock

$3,000

Retained deficit

(500)

Total

$2,500


Sparkle's net assets are reported at values approximating fair value, but it has previously unreported identifiable intangible assets valued at $7,000. The fair value of Sparkle at January 1, 2020 is $16,000.

Assume Posit and Sparkle were already under common control. On a January 1, 2020 consolidated balance sheet, goodwill is reported at:

A.

$16,000

B.

$10,000

C.

$13,500

D.

$0

Homework Answers

Answer #1

Answer A 16,000.

Variable interest Entity in which control over other entity achieved through arrangements that do not involve ownership or voting rights.

Variable interest entity is consolidated by the primary beneficiary which is the enterprise that has the power to direct significant activities of the Variable Interest entity.

In given question posit and sparkle are under common ownership. So consolidated of financial statements will be done.

In case of consolidation full value of unreported identified intangible assets will be shown in the balance sheet.

Now fair value of intangible asset is $16,000

Based on general rule of consolidation entire $16,000 will be reported as goodwill

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
Peppard acquires 90% of the voting stock of Schultz on January 1, 2020 for $5,000. The...
Peppard acquires 90% of the voting stock of Schultz on January 1, 2020 for $5,000. The fair value of the noncontrolling interest is $550. Schultz’s equity is reported at $4,800 at the date of acquisition. Its net assets are reported at amounts approximating fair value, but it has previously unreported identifiable intangible assets (5-year life, straight-line), valued at $1,000. Peppard uses the complete equity method to account for its investment. Schultz reports net income of $300 for 2020. REQUIRED: What...
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...
Parent Industries bought Subsidiary Inc.’s voting stock on January 1, 2019 for $42,000, when Subsidiary’s book...
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...
You are responsible for preparing the consolidated balance sheet of Princecraft and its new subsidiary, Sylvan,...
You are responsible for preparing the consolidated balance sheet of Princecraft and its new subsidiary, Sylvan, at the date of acquisition. The consolidation working paper as of the date of acquisition appears below. Sylvan’s assets and liabilities are reported at fair value, except that its plant and equipment is overvalued by $15,000,000, and it has previously unreported developed technology, which meets the requirements for capitalization per ASC Topic 805, valued at $20,000,000. Required a.         Fill in the consolidation working paper....
Recognition upon initial consolidation of a variable interest entity (VIE) when VIE is a business Assume...
Recognition upon initial consolidation of a variable interest entity (VIE) when VIE is a business Assume that prior to January 1, 2013, a Reporting Company owned a 10 percent interest in a Legal Entity. The Reporting Company acquired its 10 percent ownership interest in the Legal Entity on June 15, 1992 for $20,000, and correctly accounted for this investment under the cost method (i.e., it was a passive investment and it was not marketable). On January 1, 2013, the Reporting...
Crane Company purchases Cullumber Company for $5550000 cash on January 1, 2021. The book value of...
Crane Company purchases Cullumber Company for $5550000 cash on January 1, 2021. The book value of Cullumber Company's net assets reported on its December 31, 2020 financial statement was $4150000. An analysis indicated that the fair value of Cullumber's tangible assets exceeded the book value by $710000, and the fair value of identifiable intangible assets exceeded book value by $375000. Determine the fair value of identifiable net assets used to record goodwill. $5235000. $4150000. $4860000. $335000.
Question text Recognition upon initial consolidation of a variable interest entity (VIE) when VIE is a...
Question text Recognition upon initial consolidation of a variable interest entity (VIE) when VIE is a business Assume that prior to January 1, 2019, a Reporting Company owned a 15 percent interest in a Legal Entity. The Reporting Company acquired its 15 percent ownership interest in the Legal Entity on June 15, 1998 for $45,000, and correctly accounted for this investment under the cost method (i.e., it was a passive investment and it was not marketable). On January 1, 2019,...
Sam Company purchased all of the shares of Johns Company for $5,000,000 in cash on January...
Sam Company purchased all of the shares of Johns Company for $5,000,000 in cash on January 1, 2015. At the date of acquisition, fair values of John's current assets totaled $350,000, fair values of Johns long-term assets totaled $2,800,000, and fair values of Johns liabilities were the same as reported values. John's has no previously unreported assets or liabilities. The balance sheets of Sam and John’s just after the acquisition appear below. Sam Co......... John's Co.            ...
14) On 1/1/15, Pom Company Acquired 90% of the voting common stock of Star Co. for...
14) On 1/1/15, Pom Company Acquired 90% of the voting common stock of Star Co. for $91,700,000 in cash, The FV of the NCI in Star at date of acquisition was 6,300,000. Star’s net book value is $14,000,000 at date of acquisition. Star’s assets and liabilities were reported on its books at values approximating FV, except its P&E (10 yr. life, S-L) was overvalued by $25,000,000 and Star had previously unreported intangible assets with a FV of $40,000,000 (5 yr....
On January 1, 2017, Portland Company acquired all of Salem Company’s voting stock for $16,000,000 in...
On January 1, 2017, Portland Company acquired all of Salem Company’s voting stock for $16,000,000 in cash. Some of Salem’s assets and liabilities at the date of purchase had fair values that differed from reported values, as follows:    Book value Fair value Buildings and equipment, net (20 years, straight-line) $11,000,000 $ 3,000,000 Identifiable intangibles (5 years, straight-line) 0 10,000,000 Salem’s total shareholders’ equity at January 1, 2017, was $4,000,000. It is now December 31, 2020 (four years later). Salem’s...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT