Question

P5–33 Consolidation Worksheet at End of First Year of Ownership

LO 5–2

Pie Corporation acquired 75 percent of Slice Company’s ownership on January 1, 20X8, for $96,000. At that date, the fair value of the noncontrolling interest was $32,000. The book page 230value of Slice’s net assets at acquisition was $100,000. The book values and fair values of Slice’s assets and liabilities were equal, except for Slice’s buildings and equipment, which were worth $20,000 more than book value. Accumulated depreciation on the buildings and equipment was $30,000 on the acquisition date. Buildings and equipment are depreciated on a 10-year basis.

Although goodwill is not amortized, the management of Pie concluded at December 31, 20X8, that goodwill from its purchase of Slice shares had been impaired and the correct carrying amount was $2,500. Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders.

Trial balance data for Pie and Slice on December 31, 20X8, are as follows:

Required

1. Basic consolidation entry

2. consolidated income statement and statement of retained earnings

Answer 1

Calculation of goodwill =

Cost of acquisition = 96000

Fair value of NCI = 32000

Total value = 128000

(-) Fair value of acquisition = 120000

Goodwill = 8000

Impaired to 2500 at the end of dec 2018

Impairment loss = 5500

Pie’s share of impairment = 5500*70%

= 3850

Net income of slice company

Sales                                                                                                                      180000

(-) expenses

Cost of goods sold                                                                                           110000

Wage expenses                                                                                                27000

Depreciation                                                                                                      10000

Interest                                                                                                                4000

Other expenses                                                                                               5000

Income                                                                                                                24000

(-) Dividend of NCI (16000*30%)                                                               4800

(-) Pie’s dividend share                                                                                                 11200

Net income                                                                                                        8000

(-) Pie’s share (8000*70%)                                                                           5600

                               

Net income of pie corporation

Sales                                                                                                                      260000

(-) expenses

Cost of goods sold                                                                                           125000

Wage expenses                                                                                                42000

Depreciation                                                                                                      25000

Interest                                                                                                                12000

Other expenses                                                                                               13500

Income                                                                                                                42500

(-) Dividend declared                                                                                     30000

Net income (a)                                                                                                  12500

Income of slice and company (b)                                                              12375

Income earned during the year of slice company (C ) 5600

Total income (a+b+c)                                                                                     30475                   

(-) Goodwill impairment 3850

Net Income after writing off goodwill                                                   26625