Question
In: Accounting
On January 1, 2016 Venti Corporation exchanged $344,000 cash for a 90% interest in Krunk Corporation’s...
On January 1, 2016 Venti Corporation exchanged $344,000 cash for a 90% interest in Krunk Corporation’s outstanding voting stock. Krunk’s acquisition balance sheet is in the accompanying Excel spreadsheet along with the financial statements for both companies for the year ended December 31, 2018.
On January 1, 2016, Venti prepared the following fair value allocation schedule:
Consideration transferred by Venti............................................. 344,000
10% noncontrolling interest fair value....................................... 36,000
Fair value of Krunk..................................................................... 380,000
Book value of Krunk................................................................... 324,000
Excess fair value over book value................................................ 56,000
Allocated to equipment (remaining life=9 years).................... 18,000
Allocated to goodwill................................................................ 38,000
Required:
- Prepare a schedule showing the allocation of the goodwill to the controlling and noncontrolling interest.
- Prepare a schedule showing the Venti’s Equity in Krunk’s Earnings for 2016, 2017, and 2018.
- Prepare a schedule showing how Venti determined the $488,900 balance in the Investment in Krunk account.
| Krunk | |||
| Balance Sheet | |||
| As of January 1, 2016 | |||
| Cash and receivables | 15,000 | ||
| Inventory | 35,000 | ||
| Property and equipment (net) | 350,000 | ||
| TOTAL | 400,000 | ||
| Liabilities | 76,000 | ||
| Common stock | 150,000 | ||
| Retained earnings | 174,000 | ||
| TOTAL | 400,000 | ||
| Financial Statements | |||
| December 31, 2018 | |||
| Venti | Krunk | ||
| Sales | 862,000 | 366,000 | |
| Cost of goods sold | 515,000 | 209,000 | |
| Depreciation expense | 191,200 | 67,000 | |
| Equity in Krunk's earnings | 79,200 | 0 | |
| Separate company net income | 235,000 | 90,000 | |
| Retained earnings, 1/1 | 500,000 | 278,000 | |
| Net income | 235,000 | 90,000 | |
| Dividends | 130,000 | 27,000 | |
| Retained earnings, 12/31 | 605,000 | 341,000 | |
| Cash and receivables | 135,000 | 82,000 | |
| Inventory | 255,000 | 136,000 | |
| Investment in Krunk | 488,900 | 0 | |
| Property and equipment (net) | 964,000 | 328,000 | |
| Total assets | 1,842,900 | 546,000 | |
| Liabilities | 722,900 | 55,000 | |
| Common stock - Venti | 515,000 | 0 | |
| Common stock - Krunk | 0 | 150,000 | |
| Retained earnings, 12/31 | 605,000 | 341,000 | |
| Total liabilities and equity | 1,842,900 | 546,000 | |
Solutions
Expert Solution
ANSWER:-
(a)
(b). The goodwill allocation can be calculated as follows,
(c). The consolidated financial statement can be calculated as follows,
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