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1 On January 1, 2020, P company acquires 90 percent of the outstaniding common stock of company, in exchange for $1,710,000 cash. At the acquisition date, Scompanys total fair value, including the noncontrolling interest, was assessed at $1,900,000. Also at the acquisition date, 3 Scompany's book value was $725,000.(common stock 400,000, additional paid-in capital 60,000, retained earnings 265,000) 4 P company observed that Scompany had developed internally a customer base with an assed fair value of $800,000 that was not reflected on Scompany's books. The remaining useful life of cutomer base is ten years. 5 5 Book value Fair value 6 6 Customer base o 800000 7 For internal reporting purposes, P company employs the equity method to account for this investment. The following account balances are for the year 8 ending December 31, 2020, for both companies. At year-end, there were no intra-entity receivables or payables. 9 10 P company Scompany 11 Revenues ($120,000) ($120,000) 12 Cost of goods sold 40,000 40,000 13 Depreciation expense 14 Amortization expense 15 Equity in income of Gardena ($121,500) O 16 Net income ($437,000) ($215,000) 17 18 Retained earnings (1/1/2020) ($330,000) ($265,000) 19 Net income ($437,000) ($215,000) 20 Dividends declared 350,000 25,000 21 Retained earnings (12/31/2020) 22 23 Current assets 24 Investment in Scompany 1,854,000 0 25 Trademark 26 Property and equipment (net) 27 Patents 28 Total assets 29 Accounts payable 30 Common stock ($900,000) ($400,000) 31 Additional paid-in capital ($300,000) ($60,000) 32 Retained earnings (12/31/2020) 33 Total liabilities and equities 34 35 36 --------------------- 37 1. What is the goodwill of Gardena at acquisition? 38 Your answer: --- fair value of sub-book value of sub-undervalued FV of customer base 39 40 2.What is the amount of Non-Controlling Interest at acquisition (1/1/2020)? 41 Your answer: 43 3. The consolidation JED to eliminate any dividend earned from Subsidiary during 2020 (consolidation JED) 44 Your answer: Dr. 45 Cr. 46 47 4. The consolidation Esto eliminate subsidiary's stockholders' equity at December 31, 2020 (consolidation JES) 48 Your answer: Dr. 49 50 51 Cr. 52 53 54 55 5. What is the consolidated balance for investment at December 31, 2020? 56 Your answer: 57 58 6. What is the consolidated balance for equiy in income of company at December 31, 2020? 59 Your answer: 60 61 7. What is the consolidated balance for dividend declared at December 31, 2020? 62 Your answer: 63 64 65 8. What is the consolidated net income attributable to controlling interests (consolidated entity) of 5 company at December 31, 2020? 66 Your answer: 67 68 69 9. What is the consolidated balance for additional paid in capital at December 31, 2020? 70 Your answer: 71 72 10. What is the consolidated balance for common strock at December 31, 2020? 73 Your answer: 74 75 11. What is the consolidated balance for sales at December 31, 2020? 76 Your answer: 77 78 12. What is the consolidated balance for cost of goods sold at December 31, 2020? 79 Your answer: 80 81 13. What is the consolidated balance for beginning balance of retained earnings in 2020? 82 Your answer: 83 84 14. What is the total fair value of subsidiary at the acquision date (1/1/2020)? Hint: It is in the information provided 85 Your anwer: 87 15. Is customer base undervalued asset or overvalued asset? 88 Your answer: 89 90 16. Is incremental fair value on customer base debited or credited in Consolidation Journal Entry A? 91 Your answer: 92 93 94 95 1 On January 1, 2020, P company acquires 90 percent of the outstaniding common stock of company, in exchange for $1,710,000 cash. At the acquisition date, Scompanys total fair value, including the noncontrolling interest, was assessed at $1,900,000. Also at the acquisition date, 3 Scompany's book value was $725,000.(common stock 400,000, additional paid-in capital 60,000, retained earnings 265,000) 4 P company observed that Scompany had developed internally a customer base with an assed fair value of $800,000 that was not reflected on Scompany's books. The remaining useful life of cutomer base is ten years. 5 5 Book value Fair value 6 6 Customer base o 800000 7 For internal reporting purposes, P company employs the equity method to account for this investment. The following account balances are for the year 8 ending December 31, 2020, for both companies. At year-end, there were no intra-entity receivables or payables. 9 10 P company Scompany 11 Revenues ($120,000) ($120,000) 12 Cost of goods sold 40,000 40,000 13 Depreciation expense 14 Amortization expense 15 Equity in income of Gardena ($121,500) O 16 Net income ($437,000) ($215,000) 17 18 Retained earnings (1/1/2020) ($330,000) ($265,000) 19 Net income ($437,000) ($215,000) 20 Dividends declared 350,000 25,000 21 Retained earnings (12/31/2020) 22 23 Current assets 24 Investment in Scompany 1,854,000 0 25 Trademark 26 Property and equipment (net) 27 Patents 28 Total assets 29 Accounts payable 30 Common stock ($900,000) ($400,000) 31 Additional paid-in capital ($300,000) ($60,000) 32 Retained earnings (12/31/2020) 33 Total liabilities and equities 34 35 36 --------------------- 37 1. What is the goodwill of Gardena at acquisition? 38 Your answer: --- fair value of sub-book value of sub-undervalued FV of customer base 39 40 2.What is the amount of Non-Controlling Interest at acquisition (1/1/2020)? 41 Your answer: 43 3. The consolidation JED to eliminate any dividend earned from Subsidiary during 2020 (consolidation JED) 44 Your answer: Dr. 45 Cr. 46 47 4. The consolidation Esto eliminate subsidiary's stockholders' equity at December 31, 2020 (consolidation JES) 48 Your answer: Dr. 49 50 51 Cr. 52 53 54 55 5. What is the consolidated balance for investment at December 31, 2020? 56 Your answer: 57 58 6. What is the consolidated balance for equiy in income of company at December 31, 2020? 59 Your answer: 60 61 7. What is the consolidated balance for dividend declared at December 31, 2020? 62 Your answer: 63 64 65 8. What is the consolidated net income attributable to controlling interests (consolidated entity) of 5 company at December 31, 2020? 66 Your answer: 67 68 69 9. What is the consolidated balance for additional paid in capital at December 31, 2020? 70 Your answer: 71 72 10. What is the consolidated balance for common strock at December 31, 2020? 73 Your answer: 74 75 11. What is the consolidated balance for sales at December 31, 2020? 76 Your answer: 77 78 12. What is the consolidated balance for cost of goods sold at December 31, 2020? 79 Your answer: 80 81 13. What is the consolidated balance for beginning balance of retained earnings in 2020? 82 Your answer: 83 84 14. What is the total fair value of subsidiary at the acquision date (1/1/2020)? Hint: It is in the information provided 85 Your anwer: 87 15. Is customer base undervalued asset or overvalued asset? 88 Your answer: 89 90 16. Is incremental fair value on customer base debited or credited in Consolidation Journal Entry A? 91 Your answer: 92 93 94 95

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