Question

On January 1, 2016 Lennier Corporation exchanged $344,000 cash for a 90% interest in Talia Corporation’s outstanding voting stock. Klingon’s acquisition balance sheet is in the accompanying Excel spreadsheet along with the financial statements for both companies for the year ended December 31, 2018.

On January 1, 2016, Lennier prepared the following fair value allocation schedule:

                        Consideration transferred by Lennier......................................... 344,000

                        10% noncontrolling interest fair value....................................... 36,000

                        Fair value of Talia...................................................................... 380,000

                        Book value of Talia.................................................................... 324,000

                        Excess fair value over book value................................................ 56,000

                        Allocated to equipment (remaining life=9 years).................... 18,000

                        Allocated to goodwill............................................................... 38,000

Required:

1. Prepare a schedule showing the allocation of the goodwill to the controlling and noncontrolling interest.
2. Prepare a schedule showing Lennier’s Equity in Talia’s Earnings for 2018.
3. Prepare a schedule showing how Lennier determined the $488,900 balance in the Investment in Talia account.

Talia
Balance Sheet
As of January 1, 2016
Cash and receivables	15,000
Inventory	35,000
Property and equipment (net)	350,000
TOTAL	400,000
Liabilities	76,000
Common stock	150,000
Retained earnings	174,000
TOTAL	400,000
Financial Statements
December 31, 2018
	Lennier		Talia
Sales	862,000		366,000
Cost of goods sold	515,000		209,000
Depreciation expense	191,200		67,000
Equity in Klingon's earnings	79,200		0
Separate company net income	235,000		90,000
Retained earnings, 1/1	500,000		278,000
Net income	235,000		90,000
Dividends	130,000		27,000
Retained earnings, 12/31	605,000		341,000
Cash and receivables	135,000		82,000
Inventory	255,000		136,000
Investment in Talia	488,900		0
Property and equipment (net)	964,000		328,000
Total assets	1,842,900		546,000
Liabilities	722,900		55,000
Common stock - Lennier	515,000		0
Common stock - Talia	0		150,000
Retained earnings, 12/31	605,000		341,000
Total liabilities and equity	1,842,900		546,000

Answer 1

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Part a	Goodwill allocation:	Lennier	NCI
		90%	10%
	Acquisition-date fair value	$   344,000	$   36,000
	Share of identifiable net assets ($324,000 + $18,000)	$   307,800	$   34,200
	Goodwill allocation	$      36,200	$     1,800
Part b	Talia reported 2016 net income	$      90,000
	Excess equipment amortization ($18,000/9 Years)	$      (2,000)
	Adjusted net income	$      88,000
	Parflex ownership share	90%
	Equity in Eagle’s earnings	$      79,200
Part c	Initial value	$   344,000
	Change in Eagle’s RE × 90%
	($341,000 – $174,000) × 90%	$   150,300
	Excess amortization (3 years) × 90%	$      (5,400)
	Investment in Eagle 12/31/16	$   488,900