In: Accounting
Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $93,000. At that date, the fair value of the noncontrolling interest was $31,000. The book value of Best’s net assets at acquisition was $90,000. The book values and fair values of Best’s assets and liabilities were equal, except for Best’s buildings and equipment, which were worth $18,000 more than book value. Accumulated depreciation on the buildings and equipment was $24,000 on the acquisition date.Buildings and equipment are depreciated on a 10-year basis. |
Although goodwill is not amortized, the management of Power concluded at December 31, 20X8, that goodwill from its purchase of Best shares had been impaired and the correct carrying amount was $2,800. Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders. |
Trial balance data for Power and Best on December 31, 20X8, are as follows: |
Power Corporation | Best Company | |||||||
Item | Debit | Credit | Debit | Credit | ||||
Cash | $ | 49,500 | $ | 26,000 | ||||
Accounts Receivable | 72,000 | 17,000 | ||||||
Inventory | 92,000 | 30,000 | ||||||
Land | 47,000 | 20,000 | ||||||
Buildings and Equipment | 360,000 | 164,000 | ||||||
Investment in Best Co. Stock | 104,400 | |||||||
Cost of Goods Sold | 118,000 | 103,000 | ||||||
Wage Expense | 42,000 | 23,000 | ||||||
Depreciation Expense | 23,000 | 8,000 | ||||||
Interest Expense | 10,000 | 2,000 | ||||||
Other Expenses | 11,500 | 3,000 | ||||||
Dividends Declared | 39,000 | 16,800 | ||||||
Accumulated Depreciation | $ | 144,000 | $ | 32,000 | ||||
Accounts Payable | 43,000 | 11,000 | ||||||
Wages Payable | 12,000 | 7,000 | ||||||
Notes Payable | 201,400 | 86,800 | ||||||
Common Stock | 189,000 | 66,000 | ||||||
Retained Earnings | 91,000 | 24,000 | ||||||
Sales | 264,000 | 186,000 | ||||||
Income from Subsidiary | 24,000 | |||||||
$ | 968,400 | $ | 968,400 | $ | 412,800 | $ | 412,800 |
Record the amortized excess value reclassification entry.
Depreciation Expense 1800
Goodwill Impairment Loss XX
Income from Best Company XX
NCI in NI of Best Co. XX
Calculation of Goodwill
Particulars |
Parent 75% |
Non-Controlling Interest 25% |
Total |
Purchase Price |
$93,000 |
$31,000 |
$124,000 |
Less: Book Value |
|||
Common Stock |
$49,500 |
$16,500 |
$66,000 |
Retained Earnings BOY |
$18,000 |
$6,000 |
$24,000 |
Total Book Value |
$67,500 |
$22,500 |
$90,000 |
Differential Value |
$25,500 |
$8,500 |
$34,000 |
Less: Excess Building |
$13,500 |
$4,500 |
$18,000 |
Balance Goodwill |
$12,000 |
$4,000 |
$16,000 |
Total Value of goodwill at the time of acquisition |
$16,000 |
Less: Carrying value at the end |
$2,500 |
A. Impairment Loss |
$13,500 |
B. Depreciation Expenses |
$1,800 |
Total Amortized Excess Value (A+B) |
$15,300 |
Income from Best company 75% |
$11,475 |
NCI in NI of Best Co. 25% |
$3,825 |
Record the amortized excess value rectification entry
Depreciation expenses |
1,800 |
|
Goodwill Impairment Loss |
13,500 |
|
Income from Best Company |
11,475 |
|
NCI in NI of Best Co. |
3,825 |