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Giant acquired all of Smalls common stock on January 1, 2014, in exchange for cash of $770,000. On that day, Small reported common stock $170,000 and retained earnings of $400,000. At the acquisition date, $58,500 of the fair-value price was attributed to undervalued land while $76,000 was assigned to undervalued equipment having a 10-year remaining life. The $65,500 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill. Over the next few years, Giant applied the equity method to the recording of this investment.

Following are individual financial statements for the year ending December 31, 2018. On that date, Small owed Giant $10,600. Small declared and paid dividends in the same period. Credits are indicated by parentheses.

	Giant	Small
Revenues	$(1,230,600)	$(520,000)
Cost of goods sold	578,000	131,000
Depreciation expense	198,000	206,000
Equity in income of Small	(175,400)	0
Net income	$(630,000)	$(183,000)
Retained earnings, 1/1/18	$(1,510,000)	$(657,000)
Net income (above)	(630,000)	(183,000)
Dividends declared	320,000	100,000
Retained earnings, 12/31/18	$(1,820,000)	$(740,000)
Current assets	$335,000	$258,000
Investments in Small	1,072,000	0
Land	483,000	193,000
Buildings (net)	336,000	497,000
Equipment (net)	685,000	362,000
Goodwill	0	0
Total assets	$2,911,000	$1,310,000
Liabilities	$(841,000)	$(400,000)
Common stock	(250,000)	(170,000)
Retained earnings (above)	(1,820,000)	(740,000)
Total liabilities and equities	$(2,911,000)	$(1,310,000)

1. How was the $175,400 Equity in Income of Small balance computed?
2. Determine the totals to be reported by this business combination for the year ending December 31, 2018.
3. Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2018.
4. If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2018, what journal entry would Giant make to record such impairment?

Required A

Equity accrual

Less: Amortization expense

Equity in Income of Small

Required B

Revenues

Cost of Goods sold

Depreciation expense

Income of Small

Net Income

Retained earnings, 1/1/18

Dividends declared

Retained earnings, 12/31/18

Current assets

Investment in Small

Land

Building (net)

Equipment (net)

Goodwill

Total Assets

Liabilities

Common Stock

Retained earnings, 12/31/18

Total liabilities and equity

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