Question

On December 31, 2020, Petra Company invests $41,000 in Valery, a variable interest entity. In contractual agreements completed on that date, Petra established itself as the primary beneficiary of Valery. Previously, Petra had no equity interest in Valery. Immediately after Petra’s investment, Valery presents the following balance sheet:

Cash	$	41,000	Long-term debt	$	99,000
Marketing software		161,000	Noncontrolling interest		123,000
Computer equipment		61,000	Petra equity interest		41,000
Total assets	$	263,000	Total liabilities and equity	$	263,000

Each of the amounts represents an assessed fair value at December 31, 2020, except for the marketing software.

The December 31 business fair value of Valery is assessed at $164,000.

1. If the carrying amount of the marketing software was undervalued by $46,000, what amounts for Valery would appear in Petra’s December 31, 2020, consolidated financial statements?

2. If the carrying amount of the marketing software was overvalued by $46,000, what amounts for Valery would appear in Petra’s December 31, 2020, consolidated financial statements?

Answer 1

A. Consolidated financial statements of petra company as on December 31, 2020

Assets	Amount	Liabilities	Amount
Cash	$41000	Long-term debt	$99,000
Marketing Software	$207,000	Noncontrolling interest	$123,000
Computer Equipment	$61000	Petracompany equity interest	$41,000
		Gain on bargain purchase	$46,000
Total assets	$309,000	Total liabilities and equity	$309,000

B. Consolidated financial statements of petra company as on December 31, 2020

Assets	Amount	Liabilities	Amount
Cash	$41000	Long-term debt	$99,000
Marketing Software	$115,000	Noncontrolling interest	$123,000
Computer Equipment	$61,000	Petra company equity interest	$41,000
Goodwill	$46,000
Total assets	$263000	Total liabilities and equity	$263,000