54. Consolidation several years subsequent to date of acquisition-Equity method (includes impairment of Goodwill) Assume a parent company acquired a subsidiary on January 1, 2015. The purchase price was $860,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: [A] Asset Patent. Goodwill Original Amount $360,000 500,000 $860,000 Original Useful Life 6 years Indefinite The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Sales. Cost of goods sold Gross profit Equity income. Operating expenses Net income $3,000,000 (1,800,000) 1,200,000 $6,000,000 (4.700,000) 1,300,000 340.000 (980,000) $ 660,000 Balance sheet: Assets Cash.. Accounts receivable Inventory Equity investment Property, plant and equipment (PPE), net $ 550,000 $300,000 1,100,000 800,000 1,600,000 900,000 2,810,000 4,540,000 1,700,000 $10,600,000 $3,700,000 (800,000) $ 400,000 Statement of retained earnings: Beginning retained earnings. $2,990,000 Net income 660,000 Dividends (250,000) Ending retained earnings $3,400,000 $1,464,000 400,000 (64,000) $1,800,000 Liabilities and stockholders' equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC Retained earnings $ 980,000 $ 200,000 1,150,000 300,000 3,000,000 950,000 570,000 200,000 1,500,000 250,000 3,400,000 1,800,000 $10,600,000 $3,700,000 e. a. Compute the Equity Investment balance as of January 1, 2019. b. Show the computation to yield the $340,000 of Equity Income reported by the parent for the year ended December 31, 2019. Show the computation to yield the $2,810,000 Equity Investment account balance reported by the parent at December 31, 2019. d. Prepare the consolidation entries for the year ended December 31, 2019. Prepare the consolidation spreadsheet for the year ended December 31, 2019. f. Now, assume, prior to the issuance of the consolidated financial statements prepared in part (e), you perform an annual test for potential impairment of Goodwill. You decide to forego the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying value of the reporting unit. The fair value of the subsidiary is $2.5 million and the fair value of the identifiable net assets (other than Goodwill) is $2.4 million. Also, assume your company previously adopted Accounting Standards Update 2017-04: Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. Conduct your test for potential impairment of Goodwill, and prepare any required journal entry as a result of that test. 54. Consolidation several years subsequent to date of acquisition-Equity method (includes impairment of Goodwill) Assume a parent company acquired a subsidiary on January 1, 2015. The purchase price was $860,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: [A] Asset Patent. Goodwill Original Amount $360,000 500,000 $860,000 Original Useful Life 6 years Indefinite The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Sales. Cost of goods sold Gross profit Equity income. Operating expenses Net income $3,000,000 (1,800,000) 1,200,000 $6,000,000 (4.700,000) 1,300,000 340.000 (980,000) $ 660,000 Balance sheet: Assets Cash.. Accounts receivable Inventory Equity investment Property, plant and equipment (PPE), net $ 550,000 $300,000 1,100,000 800,000 1,600,000 900,000 2,810,000 4,540,000 1,700,000 $10,600,000 $3,700,000 (800,000) $ 400,000 Statement of retained earnings: Beginning retained earnings. $2,990,000 Net income 660,000 Dividends (250,000) Ending retained earnings $3,400,000 $1,464,000 400,000 (64,000) $1,800,000 Liabilities and stockholders' equity Accounts payable Accrued liabilities Long-term liabilities Common stock APIC Retained earnings $ 980,000 $ 200,000 1,150,000 300,000 3,000,000 950,000 570,000 200,000 1,500,000 250,000 3,400,000 1,800,000 $10,600,000 $3,700,000 e. a. Compute the Equity Investment balance as of January 1, 2019. b. Show the computation to yield the $340,000 of Equity Income reported by the parent for the year ended December 31, 2019. Show the computation to yield the $2,810,000 Equity Investment account balance reported by the parent at December 31, 2019. d. Prepare the consolidation entries for the year ended December 31, 2019. Prepare the consolidation spreadsheet for the year ended December 31, 2019. f. Now, assume, prior to the issuance of the consolidated financial statements prepared in part (e), you perform an annual test for potential impairment of Goodwill. You decide to forego the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying value of the reporting unit. The fair value of the subsidiary is $2.5 million and the fair value of the identifiable net assets (other than Goodwill) is $2.4 million. Also, assume your company previously adopted Accounting Standards Update 2017-04: Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. Conduct your test for potential impairment of Goodwill, and prepare any required journal entry as a result of that test