Consolidation Eliminating Entries at End of First Year Peak Entertainment acquir
ID: 2416350 • Letter: C
Question
Consolidation Eliminating Entries at End of First Year
Peak Entertainment acquires 60 percent of its subsidiary Saddlestone Inc. on January 1, 2016. In preparing to consolidate Peak and Saddlestone at December 31, 2016, we assemble the following information:
Value of stock given up to acquire Saddlestone: $10,000,000.
Direct merger costs: $250,000.
Saddlestone's stockholders' equity at acquisition: $7,200,000.
Fair value of earnings contingency agreement to be paid in cash: $300,000.
Fair value of previously unrecorded identifiable intangibles (5-year life): $2,000,000.
Goodwill and identifiable intangibles are not impaired in 2016.
Fair value of the 40 percent noncontrolling interest at acquisition: $6,500,000.
Saddlestone's net income in 2016: $3,000,000.
Saddlestone's dividends declared and paid in 2016: $1,000,000.
Peak uses the complete equity method to report the investment on its own books.
Required
(a) Calculate total goodwill and its allocation to the controlling and noncontrolling interests.
(b) Calculate equity in net income for 2016, as reported on Peak's books, and the noncontrolling interest in net income, as reported on the consolidated income statement for 2016.
(c) Prepare the consolidation eliminating entries made at December 31, 2016.
Allocation of goodwill between controlling and noncontrolling interest: Total goodwill $Answer Peaks goodwill: Answer Goodwill to noncontrolling interest $AnswerExplanation / Answer
Consolidation at End of First Year
(a) Calculate total goodwill and its allocation to the controlling and noncontrolling interests.
Calculation of goodwill is as follows:
Acquisition cost ($10,000,000 + $300,000)
$ 10,300,000
Fair value of noncontrolling interest
6,500,000
Total
16,800,000
Book value of Saddlestone
$ 7,200,000
Identifiable intangibles
2,000,000
9,200,000
Goodwill
$ 7,600,000
Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill
$ 7,600,000
Peak’s goodwill: $10,300,000 – 60%($9,200,000)
4,780,000
Goodwill to noncontrolling interest
$ 2,820,000
Calculate equity in net income for 2016, as reported on Peak's books, and the noncontrolling interest in net income, as reported on the consolidated income statement for 2016.
2016 equity in net income and noncontrolling interest in net income:
Total
Equity in NI
Noncontrolling interest in NI
Saddlestone’s reported net income
$ 3,000,000
$ 1,800,000
$ 1,200,000
Revaluation writeoff:
Identifiable intangibles $2,000,000/5
(400,000)
(240,000)
(160,000)
$ 2,600,000
$ 1,560,000
$ 1,040,000
(c) Prepare the consolidation eliminating entries made at December 31, 2016.
c. Consolidation working paper eliminating entries for 2016:(C)
Equity in net income of S
1,560,000
Dividends – Saddlestone
600,000
Investment in Saddlestone
960,000
(E)
Stockholders’ equity—Saddlestone, 1/1
7,200,000
Investment in Saddlestone
4,320,000
Noncontrolling interest in Saddlestone
2,880,000
(R)
Identifiable intangibles
2,000,000
Goodwill
7,600,000
Investment in Saddlestone (1)
5,980,000
Noncontrolling interest in Saddlestone (2)
3,620,000
(1) 60% x $2,000,000 + $4,780,000
(2) 40% x $2,000,000 + $2,820,000
(O)
Amortization expense
400,000
Identifiable intangibles
400,000
(N)
Noncontrolling interest in income of Saddlestone
1,040,000
Dividends – Saddlestone
400,000
Noncontrolling interest in Saddlestone
640,000
Acquisition cost ($10,000,000 + $300,000)
$ 10,300,000
Fair value of noncontrolling interest
6,500,000
Total
16,800,000
Book value of Saddlestone
$ 7,200,000
Identifiable intangibles
2,000,000
9,200,000
Goodwill
$ 7,600,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.