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6-2. Goodwill impairment and sale of differential asset: Assume that on 1/1/16 Big bought 100% of Little's voting stock for $500,000. On that date, Little
6-2. Goodwill impairment and sale of "differential asset": Assume that on 1/1/16 Big bought 100% of Little's voting stock for $500,000. On that date, Little had a book value of $300,000, with owners' equity accounts of Common Stock equal to $100,000 and retained earnings equal to $200,000. Little had land which was undervalued by $50,000. Any remaining differential is attributed to goodwill. During 2016 Little reported earnings of $100,000, and paid dividends of $70,000. At the end of the year Big determined that the goodwill from the Little purchase had been impaired, and the correct value was $110,0004 During 2017 Little reported earnings of $120,000 and paid dividends of $100,000. There was no additional goodwill impairment. The land which was previously undervalued was sold (the amount it was sold for is irrelevant to the requirements of this problem). Required: Prepare appropriate equity method and elimination entries for each year. (no worksheet)
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