Paramount Corporation acquired its 75 percent investment in Sun Corporation in January 2009, for $2,910,000, and accounts for its investment internally using the complete equity method. At the acquisition date, total book value of Sun was $1,500,000, including $800,000 of retained earnings, and the estimated fair value of the 25 percent noncontrolling interest was $790,000. The fair values of Sun's assets and liabilities were equal to their carrying values, except for the following items:
Fair value less book value
Accounts receivable$ (100,000)
Inventory(200,000)
Equipment (10 years, straight-line)(400,000)
Patents (5 years, straight-line)200,000
The receivables were collected and the inventory sold during the first three years following the acquisition. An impairment test made at the end of 2014 indicates a remaining value of $2,000,000 for the goodwill recognized as a result of the acquisition. Sun's stockholders' equity is $2,500,000, including $1,800,000 of retained earnings, at the end of 2014.
Required
a. Calculate the amount of goodwill initially recognized as a result of the acquisition, and its allocation to the controlling and noncontrolling interests.
b. Calculate the balance in the investment account, carried on Paramount's books, and the value of the noncontrolling interest, reported in the equity section of the consolidated balance sheet, as of the end of 2014.
c. Assume eliminating entry (C), to reverse Paramount's equity method entries for 2015, has been made. Prepare 2015 eliminating entries (E) and (R) to adjust Sun's assets to the correct values as of the beginning of 2015, eliminate the remainder of the investment, and recognize the beginning-of-2015 value of the noncontrolling interest.