Question

On January 1, 2018, Pen Corporation acquired 75% of the outstanding common stock of Sen Company for $450,000. Fair value of noncontrolling interest at the date of acquisition is $116,500. Sen’s stockholders’ equity on January 1, 2018, was as follows:

                                    Common stock, $20 par                         $200,000

                                    Additional paid-in capital    100,000

                                    Retained earnings                   100,000

                                    Accumulated OCI                       25,000

Differences between book value and fair value of the identifiable net assets of Sen Company on January 1, 2018, were limited to the following:

                                                                                                                                              Book value                Fair value                

                  Inventories (FIFO)                                                                                         $ 40,000                  $ 45,000                 

                  Building (net) (remaining life 10 years)                                                    180,000                    150,000                 

Both Pen and Sen used the straight-line method for depreciation. Goodwill was unimpaired as of December 31, 2018. However, a goodwill impairment of $20,000 was realized in 2019.

For the two fiscal years ended December 31, 2019, Sen had net income and dividends (declared and paid on December 28 each year) as follows:

                                                      Net income                                Dividends                Other Comprehensive Income (Loss)

                  2018                          $ 80,000                                    $40,000                                      8,000                        

                  2019                          120,000                                    70,000                                       (10,000)

1. Calculate total amount of goodwill and the amount of goodwill to controlling and noncontrolling interest.
2. Calculate equity in net income of Sen attributable to controlling and noncontrolling interest in 2018.
3. Prepare journal entries for Pen to record under the equity method of accounting the dividends and operating results of Sen in 2018.
4. Prepare the working paper entries (in journal entry format) for Pen Corporation and subsidiary for the year ended December 31, 2018.

Answer 1