Question

19. On January 1, 2018, Perfect Footgear acquired 60 percent of the voting stock of Shine Sports for $900,000 in cash. The fair value of the noncontrolling interest was $500,000. Shine's book value was $600,000. Date-of-acquisition revaluation information for Shine's net assets is as follows: Plant assets, with a remaining life of 10 years, straight-line, were overvalued by $300,000. Identifiable intangible assets, previously unrecorded, with an 8-year life, straight- line, are valued at $480,000 It is now December 31, 2020, three years later. Goodwill from this acquisition is not impaired. Shine's January 1, 2020 equity accounts are as follows: S 100,000 750,000 50,000 S 200.000 Capital stock Retained earnings, beginning Accumulated other comprehensive income, beginning Total Shine reported income of $100,000 and other comprehensive income of $10,000 for 2020. Perfect sells merchandise to Shine at a 25% markup on cost. In 2020, Perfect sold merchandise priced at $500,000 to Shine. Shine's beginning inventory included $75,000 in merchandise purchased from Perfect, and its ending inventory included $62,500 in merchandise purchased from Perfect. Perfect uses the complete equity method to account for its investment in Shine on its own books Required a. Calculate total goodwill at the date of acquisition, and its allocation to the controlling and noncontrolling interest. b. Prepare a schedule calculating equity in net income for 2020, appearing on Perfect's books, and the noncontrolling interest in net income for 2020, appearing on the consolidated income statement. Prepare a schedule calculating the December 31, 2020, balance for Investment in Shine, appearing on Perfect's books, and the balance for the noncontrolling interest, appearing on the consolidated balance sheet at December 31, 2020 Prepare the eliminating entries needed to consolidate the trial balances of Perfect and Shine at December 31, 2020 c. d.

Answer 1

This question is from Consolidation of Accounts. The solution is prepared accordingly.
Ans.(a) Calculation of goodwill on the date of acquisition - Shine's book value $ 600.000 less: Overwawed plants $ 300.000 Add: unrecorded intangibles $ 480.000 Revised book value $ 780,000 Fair value of non-controlling interest in Shine - $ 500.000 Less : Book value of shine for non-controlling interest : $ 312.000 Goodwill for non controlling Intenost $ 188.000 cash paid by perfect Ud - $900.000 less: Proporkonate book value - $468,000 Goodwill Por controlling interest $432.000 Total goodwill on the date of acquisition. $188.000 + $ 432,000 $ 620,000 I (b) Opening equity in the books of Shine - Add: Income reported Other comprehensive income $ 900.000 $ 100,000 $ 10.000 $ 1010.000 $12.500 Less: Unrealized profst on merchandise O X ARO 25 125 Net equity $ 997.500 equity appearing in perfect's book = $997,500 X 60' $ 598,500 Minority Interest appearing in books . $997,500 X 40%. - $ 399,000

(C) schedule calculating balance of Investment in Shine and Non-controlling Interest :- Investment in shine 60% Non-controlling Interest 40% Capital stock Retained earnings Other comprehensive Income $ 60.000 $ 450.000 $ 30,000 $ 40.000 $ 300.000 $ 20.000 $ 40.000 $ 4.000 ($ 5.000) $36.000 coment years income $ 60.000 Other Comprehensive Income $ 6.000 Unrealised profit ($ 7.500) Reduction in depreciation on plant $ 54.000 ( $300.000 € * 3) Increase in depreciation ($86,400) m intangible assets ($480.000 ~ + x3) ($ 57,600) $ 377,400 $ 566,100 Balance Dr. $ 15000 $ 15000 (d) Eliminating enties needed to be passed • for opening stock : statement of Profit and loss No To Opening Stock / for closing stock : statement of profit and loss No Dr. To closing stock to $12.500 $ 12 500