In: Accounting
Equity in Net Income and Noncontrolling Interest in Net Income
Palm Resorts acquired its 70 percent interest in Sun City on January 1, 2017, for $41,750,000. The fair value of the 30 percent non‑
controlling interest at the date of acquisition was $14,750,000. Sun City’s date‑of‑acquisition reported net
assets of $5,000,000 were carried at amounts approximating fair value, but it had unrecorded identifiable
intangibles, capitalizable per ASC Topic 805, valued at $7,500,000. These intangibles are determined to
have limited lives, amortized on a straight-line basis over five years. It is now December 31, 2020, and
Sun City reports net income of $10,000,000.
Required
a. Calculate the amount of goodwill originally reported for this acquisition, and its allocation to the
controlling and noncontrolling interests.
b. Calculate equity in net income and the noncontrolling interest in net income for 2020, assuming
goodwill from this acquisition is impaired by $2,000,000 in 2020