Question

7. The following information pertains to questions 7-14 On January 1, 2019, Pali Company acquired 75% of Silicon Company's voting stock for $44,300 in cash. The noncontrolling interest had an estimated fair value of $12,700. Silicon's assets and liabilities at the date of acquisition were reported at amounts approximating fair value, but it had previously unreported indefinite life identifiable intangibles valued at $21,000. Silicon's total shareholders' equity at January 1, 2019 was as follows: Capital stock Retained earnings Accumulated other comprehensive income Total $ 2.000 2.900 100 $ 5.000 It is now December 31, 2020 (two years later). Identifiable intangibles impairment for 2019 was $1,000 and there was no goodwill impairment. There is no identifiable intangibles impairment for 2020, but goodwill impairment for 2020 is $200. Pali uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pali and Silicon follow. Pali Dr (Cr) 5,000S 42.000 Silicon Dr (Cr) 1.000 28,000 $ 45,892 Current assets Property, net Intangibles Investment in Silicon Goodwill Liabilities Capital stock RE, beginning AOCI, beginning Sales revenue Equity in net income of Silicon Equity in OCI of Silicon Cost of goods sold Operating expenses Other comprehensive income Total (53.887) (20,664 (15.000) (2.000 (20.000 (4,400 (1.100) (116) (25.000) (14.000) (1.190) (15) 20.000 9.000 4,000 3,200 (700) (20) OS What is the initial goodwill related to this acquisition? A) $52,000 B) $18,300 C) $31,000 D) $36,000

Answer 1

Ans :-

1. Pali acquired 75% of Silicon @ $44,300

Non controlling interest = $ 12,700

Total value of Firm:- $44,300 + $12,700

                                  :- $ 57,000 (i)

              Total shareholder’s equity of Silicon:- $ 5000

               Undervaluation of intangibles :- $ 21000

               Actual valuation of equity of silicon :- $ 26,000 (ii)

Therefore Goodwill = (i) – (ii)

                                    = $ 57000 – 26,000

                                    = $ 31,000

2. Since Pali has acquired 75% shares in silicon. Share of controlling interest is 75%
3. Sales :- $ 14,000

COGS:- $ 9000

Operating expenses:- $ 3200

Therefore Income:- $14,000-$9000-$3200

                                = $1800

% of non controlling interest :- 25% of $1800 or $ 450

4. Capital stock of Silicon:- $ 2000

Retained earnings:-          $ 4,400

Credit on consolidation:- $ 25% of 6,400 or $ 1600