Question

On January 1, 2018, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for $91,700,000 in cash. The fair value of the noncontrolling interest in Starfruit at the date of acquisition was $6,300,000. Starfruit’s book value was $13,000,000 at the date of acquisition. Starfruit’s assets and liabilities were reported on its books at values approximating fair value, except its plant and equipment (10-year life, straight-line) was overvalued by $25,000,000. Starfruit Company had previously unreported intangible assets, with a market value of $40,000,000 and 5-year life, straight-line, which were capitalized following GAAP.

At the date of acquisition, what would the consolidation eliminating entry (R) credits the noncontrolling interest in Starfruit Company amount be?

Answer 1

Non controlling interest in Starfruit is $ 5,000,000

Acquisition cost		$ 91,700,000
Add: Fair value of non controlling interest		$   6,300,000
Total Fair value		$ 98,000,000
Book Value	$       13,000,000
Plant and Equipment overvalued	$     -25,000,000
Identifiable Intangibles	$       40,000,000
Fair value of Identifiable net assets		$ 28,000,000
Goodwill		$ 70,000,000
Less: Pomegranate's Goodwill		$ 66,500,000
Goodwill to non controlling interest		$   3,500,000
Pomegranate's Goodwill = 91700000-(28000000*90%)
R
Identifiable Intangibles	$       40,000,000
Goodwill	$       70,000,000
Plant and Equipment		$ 25,000,000
Investment in Starfruit (1)		$ 80,000,000
Non controlling interest in Starfruit (2)		$   5,000,000
(1) = 90%*(40000000-25000000)+66500000
(2) = 10%*(40000000-25000000)+3500000