Question

On January 1, 2018, Morey, Inc., exchanged $180,025 for 25 percent of Amsterdam Corporation. Morey appropriately applied the equity method to this investment. At January 1, the book values of Amsterdam’s assets and liabilities approximated their fair values. On June 30, 2018, Morey paid $567,000 for an additional 70 percent of Amsterdam, thus increasing its overall ownership to 95 percent. The price paid for the 70 percent acquisition was proportionate to Amsterdam’s total fair value. At June 30, the carrying amounts of Amsterdam’s assets and liabilities approximated their fair values. Any remaining excess fair value was attributed to goodwill. Amsterdam reports the following amounts at December 31, 2018 (credit balances shown in parentheses): Revenues $ (294,000 ) Expenses 219,000 Retained earnings, January 1 (195,700 ) Dividends declared, October 1 30,000 Common stock (500,000 ) Amsterdam’s revenue and expenses were distributed evenly throughout the year and no changes in Amsterdam’s stock have occurred. a.Using the acquisition method, calculate the acquisition-date fair value of Amsterdam to be included in Morey's June 30 consolidated financial statements. b.Using the acquisition method, calculate the revaluation gain (or loss) reported by Morey for its 25 percent investment in Amsterdam on June 30. c.Using the acquisition method, calculate the amount of goodwill recognized by Morey on its December 31 balance sheet (assume no impairments have been recognized). d.Using the acquisition method, calculate the noncontrolling interest amount reported by Morey on its June 30 and December 31 consolidated balance sheet.

	a. Acquisition-date fair value b. c. Goodwill d. Noncontrolling interest on June 30 Noncontrolling interest on December 31

Answer 1

a).Acquisition date fair value of Amsterdam as on June 30 to be included in Money's statements.

Price paid by morey for 70% stake is proportionately equals to fair value of Amsterdam

So $567000 = 70

Total fair value(?) =100%

On cross multiplication

Total fair value as June 30 =[ ($567000*100%)/70%] = $810000

b). Revaluation gain or loss

1.Equity investment in Amsterdam = $180025

2.Income for first 6 months = $ 37500

[Revenue-expenses= 294000-219000

=75000 for year, for six months

75000/2 = 37500]

3.Book value [ 1+2] = $ 217525

4.Fair value [ 25% of 810000] = $ 202500

Revaluation loss = fairvalue-bookvalue = $ 15025

c). Goodwill as on 31st December

1. Fair value = $810000

2. Book value = $740700

3. Goodwill [1-2] = $69300

d). Non controlling interest as on 31 st December in Amsterdam:

1. 5% of fair value [5%*810000] = $40500

2. 5% of income [ 75000/2×5%] = $ 1875

3. 5% of dividend [ 30000×5%] = $ 1500

4. Total [1+2+3] = $43875