Question

Consolidation Eliminating Entries, Date of Acquisition and Two Years Later Plaza Hotels acquired a 90 percent interest in Stardust Casinos on January 1, 2020 for $51,100,000. The fair value of the 10 percent noncontrolling interest at the date of acquisition was $2,900,000. Stardust's date-ofacquisition reported net assets were carried at amounts approximating fair value, except for these items: • Plant and equipment, 10-year life, straight-line, is overvalued by $6,000,000. • Previously unrecorded limited-life identifiable intangibles, 4-year life, straight-line, were valued at $8,000,000. Stardust's equity accounts at the date of acquisition were as follows: Capital stock $300,000 Retained earnings 1,650,000 Accumulated other comprehensive income 50,000 Total $2,000,000 Stardust reports net income of $4,000,000 and other comprehensive loss of $10,000 for 2021. Stardust reported net income of $2,800,000 and other comprehensive income of $25,000 in 2020. Stardust did not declare any dividends in either year. Goodwill from this acquisition is impaired by $200,000 during 2021, but was not impaired in 2020. Required a. Calculate the original goodwill for this acquisition and its allocation to controlling and noncontrolling interests. In what ratio is goodwill allocated between controlling and noncontrolling interests? • Enter your answers in thousands ($51,100,000 equals $51,100 in thousands). • Enter your ratio answers in percentages. Support Amount Ratio Total goodwill Allocation to controlling interests Allocation to noncontrolling interests

Answer 1

Part A

Calculation of goodwill:
Acquisition cost		51100000
Fair value of noncontrolling interest		2900000
Total fair value		54000000
Book value of Stardust	2000000
Revaluations:
Plant and equipment	(6000000)
Identifiable intangibles	8000000	4000000
Goodwill		50000000

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill	50000
Plaza’s goodwill: (51100000 – (90% *4000000)	47500
Goodwill to noncontrolling interest	2500

Goodwill is allocated in a 95:5 ratio (47500000:2500000)

Part B

Entry	Account titles and explanation	Debit	Credit
(E)	Capital stock	300
	Retained earnings	1650
	Accumulated OCI	50
	Investment in Stardust (200000090%)		1800
	Noncontrolling interest in Stardust ((200000090%)		200
(R)	Identifiable intangibles	8000
	Goodwill	50000
	Plant and equipment		6000
	Investment in Stardust (90%)		49300
	Noncontrolling interest in Stardust (10%)		2700

((8000000-6000000)*90%)+47500000 = 49300000

((8000000-6000000)*10%)+2500000 = 2700000

Part C

	Total	Equity in NI	Noncontrolling Interest in NI
Stardust’s reported net income	4000000	3600000	400000
Revaluation write-offs:
Plant and equipment $6,000,000/10	600000	540000	60000
Identifiable intangibles $8,000,000/4	(2000000)	(1800000)	(200000)
Goodwill impairment loss 95:5	(200000)	(190000)	(10000)
	2400000	2150000	250000

Entry	Account titles and explanation	Debit	Credit
(C)	Equity in NI	2150
	Equity in OCL		9
	Investment in Stardust		2141
(E)	Capital stock	300
	Retained earnings, beg (1650000+2800000)	4450
	Accumulated OCI, beg. (50000+25000)	75
	Investment in Stardust (90%)		4342.5
	Noncontrolling interest in Stardust (10%)		482.5
(R)	Identifiable intangibles	6000
	Goodwill	50000
	Plant and equipment		5400
	Investment in Stardust ((90%*(6000000-5400000))+47500000		48040
	Noncontrolling interest in Stardust ((10%*(6000000-5400000))+2500000		2560
(O)	Operating expenses	1600
	Plant and equipment	600
	Identifiable intangibles		2000
	Goodwill		200
(N)	Noncontrolling interest in NL	250
	Noncontrolling interest in OCL		1
	Noncontrolling interest		249