Horizon Communications bought all of Cricket Cable’s voting stock on January 1,
ID: 2450444 • Letter: H
Question
Horizon Communications bought all of Cricket Cable’s voting stock on January 1, 2017 for $42,000, when Cricket’s book value was $8,000. Fair value information on Cricket’s assets and liabilities at the date of acquisition is as follows: * Property and equipment is overvalued by $7,000. P&E has a 10-year remaining life, straight-line. * Previously unreported identifiable intangibles are valued at $8,000. These intangibles have indefinite lives, but testing reveals impairment of $2,000 in 2017 and $1,000 impairment in 2018. * Goodwill reported for this acquisition is not impaired in 2017, but is impaired by $3,000 in 2018. Horizon uses the complete equity method to account for its investment in Cricket, on its own books. It is now December 31, 2018, two years since the acquisition. The consolidation working paper at December 31, 2018, with the separate trial balances of Horizon and Cricket, follows. Horizon Dr (Cr) Cricket Dr (Cr) Dr Cr Consol Dr (Cr) Current assets $ 15,000 $ 10,000 Property & equipment, net 90,000 63,000 F Identifiable intangibles -- -- Investment in Cricket 44,900 -- E Goodwill -- -- Liabilities (76,200) (57,500) Capital stock (40,000) (5,000) Retained earnings, Jan. 1 (30,000) (6,100) G Treasury stock 2,000 100 Dividends -- 500 A Sales revenue (84,000) (50,000) H Equity in NI of Cricket (1,700) – B Cost of goods sold 55,000 30,000 Operating expenses 25,000 _______ 15,000 _______ C D Total $ 0 $ 0 GIVEN: The initial value calculated for Goodwill is $33,000 Equity in Net income equals $1,700 Required Fill in the missing letters as noted on the consolidation working paper at December 31, 2018. Briefly explain your explanation.
Explanation / Answer
Identifiable intangible assets Jan 1,2017 =$ 8,000
Impairment in 2017 =$2,000
Impairment in 2018 =$1,000
Identifiable intangible assets Dec 31 2018 =$8000-$2000-$1000=$5000
Goodwill
Book value of assets of Cricket Cable =$8,000
Amount paid by Horizon Communications =$42,000
Goodwill =$34,000
Goodwill impairment =$3,000
Goodwill as on Dec 31,2018 =$31,000
Goodwill of Cricket Cable =$ 31,000
Goodwill of Horizon Communications =$33,000
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