Question

Tapter O C ULISUluateu Pillalltidl Olalella. IILUI LUPO 2, 4 P6.16 Equity Method. Intercompany Merchandise and Service Transactions, Consolid tion Pearl Footwear acquired all of the voting stock of Sebogo Inc. at the beginning of 2016 acquisition cost was $450 million, and Sebogo's book value at that time was $50 million Revol information for Sebogo's identifiable net assets is as follows: • Plant assets with a 20-year remaining life, straight-line, were overvalued by $20 million • Inventory (FIFO) was overvalued by $5 million (sold in 2017) Previously unrecorded indefinite-lived developed technology was valued at $40 million: impairment to the beginning of 2020 was $1 million, and impairment for 2020 is $3 million.' • Goodwill impairment to the beginning of 2020 was $25 million; there is no impairment in 2020. It is now the end of 2020 (five years after the acquisition). Information on intercompany transactions for 2020 is as follows: Pearl provided consulting services costing it $3 million to Schogo at a charge of $5 million. At year- end, Sebogo owes Pearl $500,000 related to the consulting services. Sebogo includes services ex- penses in operating expenses; Pearl includes charges for consulting in its revenues. Sebogo sells merchandise to Pearl on a regular basis, at a markup of 20 percent on cost. Total sales made to Pearl in 2020 were $35 million. Pearl's beginning inventory balance has $3.6 million in merchandise purchased from Sebogo. Pearl's ending inventory balance has $6 million in merchandise purchased from Sebogo. At year-end, Pearl owes Sebogo $600,000 related to merchandise purchases. Pearl sells merchandise to Sebogo on a regular basis, at a markup of 25 percent on cost. Total sales made to Sebogo in 2020 were $50 million. Sebogo's beginning inventory balance has $10 million in merchandise purchased from Pearl. Sebogo's ending inventory balance has $7.5 million in mer- chandise purchased from Pearl. At year-end, Sebogo owes Pearl $800,000 related to merchandise purchases. December 312020. trial balances for Pearl and Sebogo are below. Pearl uses the complete equity memo to report its investment in Sebogo on its own books. Pearl Sebogo

Answer 1

Equity Contributed capital :. Amount a corporation receives from the sale of stock Common or Preffered) to the stock holders. Additional Paid - In capital amount received at issuance that exceeds the par value of the Stock Retained earnings : Amount of met Income, over the life of the company not paid out as dividends An important link between the income statement and the balance sheet. Equity = Assets - liabilities. I Net Income = Total Revenue - Total expense Equity = 6.000000 - 5853400 a 146600

b) Investment in Sebogo Total Investment = Total liabilities & Toral earrito = 1026700 6400 Paveltment > 1033100 (di consolidation working Paper : i The Preparation of Consolidated balance sheet on the date of business combination usually requires the use of a working paper for Consolidated balance sheet. y Developing the Eliminations. i The following features of the working Paper for consolidated balance sheet on the date of the business Combination should be emphasized.

Consolidated financial statement (Join arrangements Disclosure of interest a other Earrites (investment in Associaty) revenue. eparate financal Statements) Business Combinaties t Average Equity & Equity at the begenning of the year Equity at the end to the year 2 Net Income a operating Income & Non-oderating items.