Question

In: Accounting

1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s...

1. On January 1, 2017, a subsidiary sold equipment to its parent for $520,000. The subsidiary’s original cost was $200,000 and as of January 1, 2017, $20,000 in depreciation had been recorded on the subsidiary’s books. At the date of sale, the equipment had a 10-year remaining life, straight-line. It is now December 31, 2021 (5 years since the sale), and the parent still holds the equipment.

REQUIRED: Prepare the consolidation eliminating entries for 2021

2. Baracus, Inc. pays $95,000 in cash and stock to acquire 80% of the voting stock of Clover Company. The fair value of the noncontrolling interest is $21,250. The book value of the acquired company is $66,250, and no revaluations of acquired identifiable net assets are necessary.

REQUIRED:

How much is total goodwill?
What amount and percent of goodwill is allocated to the controlling interest?
What amount and percent of goodwill is allocated to the non-controlling interest?

Expert Solution

Question 1)

Step 1: Calculation Of Unrealized profit of the Subsidiary

Particulars	Amount $
Unrealized Profit on Sale of Equipment ($520000-$200000)	$ 320000
Less:
Depreciation on Unrealized profit on Sales (Amortised over 10 years) (320000/10*5)	$( 160000)
Balance of Unrealized Profit on Equipment	$ 160000

Step 2: Consolidation Elimination Entry for 2021

In the Books of Subsidiary

Particulars

Debit $

Credit $

Reserves & Surplus A/c ……….. Dr

To Equipment A/c

160000

Question 2)

Step 1: Calculation of Fair Value of the Clover Company

Fair value of Non controlling Interest = $ 21250

% of Non Controlling Interest = 20%

Fair Value of the Clover Company = $ 21250/20%

= $ 106250

Book Value of the Company = $ 66250

Total Goodwill of the Company = $ 106250 - $ 66250

= $ 40000

Goodwill allocated to Baracus Inc. = 40000*80% = $ 32000

Goodwill Allocated to NCI = 40000 * 20 % = $ 8000

ekkarill92 answered 3 years ago

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