Question

16. Pacer Hotels bought 80% of Southern Resorts' voting stock on January 1, 2020 for $35,000. The fair value of the noncontrolling interest in Southern was $7,000 at the date of acquisition. Fair value information on Southern's assets and liabilities at the date of acquisition is as follows: • Property and equipment 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 2020. Goodwill reported for this acquisition is not impaired in 2020. The December 31, 2020 trial balances for Pacer and Southern are as follows: Current assets Property & equipment, net Investment in Southern Liabilities Capital stock Retained earnings, Jan. 1 Treasury stock Dividends Sales revenue Equity in NI of Southern Cost of goods sold Operating expenses Total Pacer Southern Dr (Cr) Dr (Cr) $ 21,900 $ 10,000 90,000 60,000 37,5601 (74,500) (57,500) (40,000) (5,000) (30.000) (3.100 2,000 100 500 (84.000) (50,000) (2,960) 55.000 30,000 25.000 15.000 So SO Pacer uses the complete equity method to account for its investment in Southern on its own books. Required a. Prepare a schedule calculating the initial value of goodwill for this acquisition, and its allocation to the parent and to the noncontrolling interest. b. Calculate Pacer's equity in net income of Southern for 2020, reported on Pacer's books, and the noncontrolling interest in consolidated net income for 2020, shown on the 2020 consolidated income statement. c. Prepare a working paper to consolidate the December 31, 2020 trial balances of Pacer and Southern.

Can you do part a only?

Part A

Answer 1

Calculation of goodwill on acquisition
Sr. No.	Particulars	Amount
1	Current Asset	10,000.00
2	Property Plant and Equipment	60,000.00
	Less: overvaluation	(7,000.00)
3	Intangibles	8,000.00
4	Liabilities	(57,500.00)
5	Treasury Stock	100.00
6	Dividends	500.00
7	Net Assets	14,100.00
	Assets Shared as follows
8	Pacer Hotels (80%) (7*.80)	11,280.00
9	Non controlling Interest (NCI) (7*.20)	2,820.00
	Consideration Paid/Fair Value-
10	Pacer Hotels (80%)	35,000.00
11	Non controlling Interest (NCI)	7,000.00
	Valuation of Goodwill
12	Pacer Hotels (80%) (10-8)	23,720.00
13	Non controlling Interest (NCI) (11-9)	4,180.00