Consolidation Eliminations Several Years after Acquisition Paramount Corporation acquired its 75 percent investment in Sun Corporation...
Consolidation Eliminations Several Years after Acquisition
Paramount Corporation acquired its 75 percent investment in Sun Corporation in January 2012, for $5,820,000 and accounts for its investment internally using the complete equity method. At the acquisition date, total book value of Sun was $3,000,000 including $1,600,000 of retained earnings, and the estimated fair value of the 25 percent noncontrolling interest was $1,580,000. The fair values of Sun's assets and liabilities were equal to their carrying values, except for the following items:
| Fair value less Book value | |
|---|---|
| Accounts receivable | $(200,000) |
| Inventory | (250,000) |
| Equipment (10 years, straight-line) | (800,000) |
| Patents (5 years, straight-line) | 400,000 |
| Deferred tax liabilities (created as a result of the nontaxable acquisition) | 150,000 |
The receivables were collected and the inventory sold during the first three years following the acquisition. Deferred tax liabilities of $120,000 were reversed during 2012–2017. An impairment test made at the end of 2017 indicates a remaining value of $4,000,000 for the goodwill recognized as a result of the acquisition. Sun's shareholders' equity is $5,000,000 including $3,600,000 of retained earnings, at the end of 2017.
For all answers below: Enter answers using all zeros, do not abbreviate to thousands or millions.
Required
(a) Calculate the amount of goodwill initially recognized as a
result of the acquisition, and its allocation to the controlling
and noncontrolling interests.
| Allocation of goodwill | |
|---|---|
| Goodwill | Answer |
| Paramount’s share of goodwill: | Answer |
| Noncontrolling interest’s share of goodwill | Answer |
(b) Calculate the balance in the investment account, carried on Paramount's books, and the value of the noncontrolling interest, reported in the equity section of the consolidated balance sheet, as of the end of 2017.
| Balances as of 2017 year-end | |
|---|---|
| Investment in Sun | Answer |
| Noncontrolling interest in Sun | Answer |
(c) Assume eliminating entry (C), to reverse Paramount's equity method entries for 2018, has been made. Prepare 2018 eliminating entries (E) and (R) to adjust Sun's assets to the correct values as of the beginning of 2018, eliminate the remainder of the investment, and recognize the beginning-of-2018 value of the noncontrolling interest.
| Consolidation Journal | ||
|---|---|---|
| Description | Debit | Credit |
| (E) | ||
| AnswerInvestment in SunShareholders' equity-SunEquipment, netCashGoodwill | Answer | Answer |
| AnswerEquipment, netInvestment in SunShareholders' equity-SunCashGoodwill | Answer | Answer |
| Noncontrolling interest in Sun | Answer | Answer |
| (R) | ||
| AnswerInvestment in SunShareholders' equity-SunEquipment, netCashGoodwill | Answer | Answer |
| Equipment, net | Answer | Answer |
| Deferred tax liabilities | Answer | Answer |
| AnswerInvestment in SunShareholders' equity-SunEquipment, netCashGoodwill | Answer | Answer |
| Noncontrolling interest in Sun | Answer | Answer |
Please answer all parts of the question.
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Homework Answers
| (a) Calculate the amount of goodwill initially recognized as a result of the acquisition, and its allocation to the controlling and noncontrolling interests. | ||
| Paramount’s acquisition cost | $ 5,820,000.00 | |
| Fair value of noncontrolling interest | $ 1,580,000.00 | |
| Total | $ 7,400,000.00 | |
| Book value, date of acquisition | $ 3,000,000.00 | |
| Revaluations: | ||
| Accounts receivable | ($200,000) | |
| Inventory | ($250,000) | |
| Equipment | ($800,000) | |
| Patents | $400,000 | |
| Deferred tax liabilities | ($150,000) | $ 2,000,000.00 |
| Goodwill | $ 5,400,000.00 | |
| Allocation of goodwill | ||
| Goodwill | $ 5,400,000.00 | % Allocation |
| Paramount’s share of goodwill: $5,820,000 – (75% x $2,000,000) = | $ 4,320,000.00 | 80% |
| Noncontrolling interest’s share of goodwill | $ 1,080,000.00 | 20% |
| (b) Calculate the balance in the investment account, carried on Paramount's books, and the value of the noncontrolling interest, reported in the equity section of the consolidated balance sheet, as of the end of 2017. | ||
| Balances as of 2017 year-end | ||
| Investment in Sun | $ 6,687,500.00 | |
| Noncontrolling interest in Sun | $ 1,962,500.00 | |
| Investment in Sun | Noncontrolling interest in Sun | |
| Balances as of 2012 year- beginning | $ 5,820,000.00 | $ 1,580,000.00 |
| Change in Sun’s retained earnings, 2012-2017: ($3,600,000 – $1,600,000), divided 75:25 | $ 1,500,000.00 | $ 500,000.00 |
| Write-off of Sun’s identifiable net asset revaluations: | ||
| 2012-2017: ($200,000 + $250,000 + $480,000 – $400,000 + $120,000), divided 75:25 | $ 487,500.00 | $ 162,500.00 |
| Goodwill impairment, 2012-2017: ($5,400,000 – $4,000,000), divided 80:20 | $ (1,120,000.00) | $ (280,000.00) |
| Balances as of 2017 year-end | $ 6,687,500.00 | $ 1,962,500.00 |
| (c) Assume eliminating entry (C), to reverse Paramount's equity method entries for 2018, has been made. Prepare 2018 eliminating entries (E) and (R) to adjust Sun's assets to the correct values as of the beginning of 2018, eliminate the remainder of the investment, and recognize the beginning-of-2018 value of the noncontrolling interest. | ||
| Consolidation Journal | ||
| Description | Debit | Credit |
| (E) | ||
| Shareholders' equity-Sun | $ 5,000,000.00 | |
| Net Investment in Sun (5,000,000 x 75%) | $ 3,750,000.00 | |
| Noncontrolling interest in Sun (5,000,000 x 25%) | $ 1,250,000.00 | |
| (R) | ||
| Goodwill | $ 4,000,000.00 | |
| Equipment, net [800,000 – [(6/10) x $800,000] | $ 320,000.00 | |
| Deferred tax liabilities (150000-120000) | $ 30,000.00 | |
| Investment in Sun (80% x $4,000,000) – (75% x $350,000) | $ 2,937,500.00 | |
| Noncontrolling interest in Sun (20% x $4,000,000) – (25% x $350,000) | $ 712,500.00 | |
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Consolidation Eliminations Several Years after
Acquisition
Paramount Corporation acquired its 75 percent investment in Sun
Corporation...
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