Question
In: Accounting
32. Patriot Corporation acquired 75% ownership of Seahawk Corporation on January 1, 20X8, for $300,000. The...
32. Patriot Corporation acquired 75% ownership of Seahawk Corporation on January 1, 20X8, for $300,000. The fair value of the noncontrolling interest was $100,000. At that date, Seahawk reported common stock outstanding of $100,000 and retained earnings of $180,000. The differential is assigned to equipment, which had a fair value $50,000 greater than book value and a remaining economic life of 5 years at the date of the business combination. The remaining excess is considered goodwill. Seahawk reported net income of $40,000 and paid dividends of $20,000 in 20X8.
Required:
- What is the amount of goodwill?
- Provide the journal entries recorded by Patriot during 20X8 on its books if it accounts for its investment in Seahawk using the equity method.
- Give the consolidating entries needed at December 31, 20X8, to prepare consolidated financial statements.
Basic consolidation entry: Amortized excess value reclassification entry:
Excess value (differential) reclassification entry:
Solutions
Expert Solution
ANSWER :-
1.
|
Calculation of Goodwill |
|||||||
| Consideration Paid for 75% | $300,000 | ||||||
| Add: NCI Fair value | $100,000 | ||||||
| Total Fair Value | $400,000 | ||||||
| Less: Book Value | $-280,000 | ||||||
| Excess Fair Value | $120,000 | ||||||
| Allocated to: | Life | Amortization | NCI | Patriot | |||
| Equipment | $50,000 | 5Year | $10,000 | $2,500 | $7,500 | ||
| Goodwill | $120,000-$50,000 | $70,000 | |||||
2.
| Account | Debit | Credit |
| Investment in Seahawk | $300,000 | |
| Cash | $300,000 | |
| (to record initial investment) | ||
| Investment in Seahawk | $30,000 | |
| Income from Seahawk | $30,000 | |
| (To record 75% income share) $40,000*75% | ||
| Cash | $15,000 | |
| Investment in Seahawk | $15,000 | |
| (To record dividend share) 75%*$20,000 | ||
| Income from Seahawk | $7,500 | |
| Investment in Seahawk | $7,500 | |
| (To record 75% amortization) $10,000*75% | ||
3.
| Common Stock | $100,000 | |
| Retained Earning | $180,000 | |
| Income from Seahawk | $30,000 | |
| NCI in Net income of Seahawk | $10,000 | |
| Dividends Declared | $ 20,000 | |
| Investment in Seahawk (Working-1) | $225,000 | |
| NCI in Net Asset of Sehawk (Working-1) | $ 75,000 | |
| (To record elimination entry) | ||
| Working for above entry: | ||
| NCI | Patriot | |
| Beginning Book Value $280,000*75% and 25% | $70,000 | $210,000 |
| Add: Income Share | $10,000 | $ 30,000 |
| Less: Dividend share | $-5,000 | $ -15,000 |
| $75,000 | $225,000 | |
| Depreciation Expense | $10,000 | |
| Investment in Seahawk (From Part -1) | $7,500 | |
| NCI in Net Income of Sehawk (From Part-1) | $2,500 | |
| (To record amortization) | ||
| Equipment | $50,000 | |
| Accumulated Depreciation | $10,000 | |
| Investment in Seahawk (50000-10000)*75% | $30,000 | |
| NCI in Net Asset of Sehawk (50000-10000)*25% | $10,000 | |
| (To record excess value) | ||
_____________________________________________________________
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