Question

On January 1, 2020, Peppard Inc. acquired all of the stock of Smith Telecom for $85,000 in cash. At the date of acquisition, Smith's shareholders' equity accounts were as follows:

Common Stock, $1 par: $1,000

APIC: $14,000

Retained Earnings: ($3,000)

Treasury Stock: ($200)

Total: $11,800

Both companies have a December 31 year end. At the date of acquisition, Smith reported net assets had book values approximating fair value. However, it had previously unreported indefinite life identifiable intangibles valued at $15,000, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $600. Goodwill from this acquisition was not impaired in 2020. Smith reported net income of $900 in 2020, and paid no dividends. Peppard uses the complete equity method to report its investment in Smith on its own books.

Additional information:

The amount of Goodwill that resulted from this acquisition is $58,200.

The equity in net income reported on Peppard's books in 2020 is $300.

Required:

Prepare eliminating entries (C), (E), (R), and (O), required to consolidate Peppard's trial balance accounts with those of Smith on December 21, 2020.

Answer 1

Solution	Given
Goodwill	$58,200
net income	$300

Prepare Elimination Entries
Entry C	Debit	Credit
Equity in net income of subsidiary	$300
Investment in subsidiary		$300
Eliminate equity in net income
Entry E	Debit	Credit
Common stock	$1,000
Additional paid-in capital	$14,000
Retained earnings		$3,000
Treasury stock		$200
Investment in subsidiary		$11,800
Eliminate beginning equity accounts
Entry R	Debit	Credit
Indefinite identifiable intangibles	$15,000
Goodwill	$58,200
Investment in subsidiary		$73,200
Recognize beginning revaluations
Entry O	Debit	Credit
Impairment losses	$600
Indefinite identifiable intangibles		$600