Question

Consolidation Eliminating Entries, Date of Acquisition and Two Years Later

Plaza Hotels acquired a 90 percent interest in Stardust Casinos on January 1, 2020 for $51,100,000. The fair value of the 10 percent noncontrolling interest at the date of acquisition was $2,900,000. Stardust’s date-ofacquisition reported net assets were carried at amounts approximating fair value, except for these items:

• Plant and equipment, 10-year life, straight-line, is overvalued by $6,000,000.

• Previously unrecorded limited-life identifiable intangibles, 4-year life, straight-line, were valued at $8,000,000.

Stardust’s equity accounts at the date of acquisition were as follows:

Capital stock	$300,000
Retained earnings	1,650,000
Accumulated other comprehensive income	50,000
Total	$2,000,000

Stardust reports net income of $4,000,000 and other comprehensive loss of $10,000 for 2021. Stardust reported net income of $2,800,000 and other comprehensive income of $25,000 in 2020. Stardust did not declare any dividends in either year. Goodwill from this acquisition is impaired by $200,000 during 2021, but was not impaired in 2020.

Required

a. Calculate the original goodwill for this acquisition and its allocation to controlling and noncontrolling interests. In what ratio is goodwill allocated between controlling and noncontrolling interests?

Enter your answers in thousands ($51,100,000 equals $51,100 in thousands).

Enter your ratio answers in percentages.

		Amount	Ratio
Total goodwill		$Answer
Allocation to controlling interests		Answer	Answer%
Allocation to noncontrolling interests		Answer	Answer%

b. Prepare the consolidation eliminating entries (E) and (R) at the date of acquisition.

Enter your answers in thousands ($51,100,000 equals $51,100 in thousands).

Ref.	Description		Debit	Credit
(E)	Capital stock		Answer	Answer
	Retained earnings		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Investment in Stardust		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
(R)	Identifiable intangibles		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Investment in Stardust		Answer	Answer
	Noncontrolling interest in Stardust		Answer	Answer

c. Prepare the consolidation eliminating entries (C), (E), (R), (O) and (N) at December 31, 2021.

Enter your answers in thousands, using decimals if appropriate ($39,400 equals $39.4 in thousands).

Ref.	Description		Debit	Credit
(C)	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Investment in Stardust		Answer	Answer
(E)	Capital stock		Answer	Answer
	Retained earnings, beg.		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Noncontrolling interest in Stardust		Answer	Answer
(R)	Identifiable intangibles		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Investment in Stardust		Answer	Answer
	Noncontrolling interest in Stardust		Answer	Answer
(O)	Operating expenses		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Goodwill		Answer	Answer
(N)	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	AnswerAccumulated other comprehensive incomeEquity in net incomeEquity in other comprehensive lossGoodwillIdentifiable intangiblesInvestment in StardustNoncontrolling interest in net incomeNoncontrolling interest in OCLNoncontrolling interest in StardustPlant and equipment		Answer	Answer
	Noncontrolling interest		Answer	Answer

Answer 1

ANSWER:

The fair value of the 10 percent noncontrolling interest at the date of acquisition was $2,900,000. Stardust’s date-ofacquisition reported net assets were carried at amounts approximating fair value, except for these items:

Part A

Calculation of goodwill:

Acquisition cost................ ........ ..... ........ ..... .. $ 51,100,000

Fair value of noncontrolling interest..................... 2,900,000

Total fair value.................................... ....................54,000,000

Book value of Stardust..................... $ 2,000,000

Revaluations:Plant and equipment...(6,000,000)

Identifiable intangibles.......... .. .... ...8,000,000.... 4,000,000

Goodwill..........……........................................ .........$ 50,000,000

Allocation of goodwill between controlling and noncontrolling interest:

Total Goodwill...........................................................$ 50,000,000

Plaza’s goodwill: $51,100,000-(90%*$4,000,000)..... 47,500,000

Goodwill to noncontrolling interest...........................$ 2,500,000

Goodwill is allocated in a 95:5 ratio (47,500,000 : 2,500,000)

Part B