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Power Corporation acquired 75 percent of Best Company’s ownership on January 1, 20X8, for $93,000. At...

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

Solutions

Expert Solution

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


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