Question
2. P&G acquires all of the voting stock of Gillam Co. on January 1, 2017 at an acquisition cost of $20,000,000. Gillams balance sheet at
2. P&G acquires all of the voting stock of Gillam Co. on January 1, 2017 at an acquisition cost of $20,000,000. Gillams balance sheet at the date of acquisition is as follows (in thousands):
Gillam Co. | ||
(in thousands) | Book Value Dr (Cr) | Fair Value Dr (Cr) |
Current assets | $ 100 | $ 100 |
Plant & equipment | 5,000 | 8,000 |
Patents | 200 | 2,000 |
Customer order backlog | 0 | 4,000 |
Trademarks | 0 | 2,000 |
Current liabilities | (200) | (200) |
Long-term liabilities | (1,400) | (1,500) |
Common stock | (500) | |
Additional paid-in capital | (2,000) | |
Retained earnings | (1,200) | |
Total | $ 0 |
Goodwill connected with this acquisition is $5,600,000. As of January 1, 2017, the revaluations have the following estimated lives (all straight-line):
Plant & equipment 20 years Patents 10 years Customer order backlog 5 years Trademarks 10 years Long-term liabilities 5 years
P&G uses the complete equity method to account for its investment in Gillam. Goodwill impairment losses are $300,000 in 2017 and $50,000 in 2018. The December 31, 2018 trial balances for P&G and Gillam appear in the consolidation working paper provided below.
- Show the computation of goodwill resulting from this acquisition.
- Compute P&G equity in net income of Giliam for 2018.
- Prepare all journal entries related to the investment made by P&G during 2018 (using the complete equity method).
- Prepare the elimination entries made in consolidation at December 31, 2018.
- Complete consolidation workpaper below.
(in thousands) P&G Gillam Dr (Cr) Dr (Cr) Current assets $ 4,200 $ 150 Plant & equipment, net 260,000 10,600 Patents 200 Investment in Gillam
20,730 Customer order backlog Trademarks Goodwill Current liabilities (11,290) (250) Long-term liabilities (156,900) (3,300) Common stock (4,000) (500) Additional paid-in capital (40,000) (2,000) Retained earnings, Jan. 1 (70,000) (3,100) Dividends 800 100 Sales revenue (25,000) (10,000) Equity in net income of Gillam (540) Cost of goods sold 15,000 6,000 Operating expenses 7,000 2,100 Total $ 0 $ 0
Prepare the consolidated statement of comprehensive income (income statement and comprehensive income) for 2018 and the consolidated balance sheet at December 31, 2018.
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