Acquisition Cost, Equity Method, Eliminating Entries, Second Year

Peak Entertainment acquires all of the stock of Saddlestone Inc. on January $1,2022.$ In preparing to consolidate the trial balances of Peak and Saddlestone at December $31,2023($two years after the acquisition$),$ you assemble the following information:

Date$-$of$-$acquisition information:

$$ Value of stock given up to acquire Saddlestone: $$20,000,000.$

$$ Direct merger costs: $$250,000.$

$$ Saddlestone$$s shareholders$$ equity: $$7,200,000,$ consisting of capital stock, $$2,000,000$; retained earnings, $$5,000,000$; accumulated other comprehensive income, $$200,000.$

$$ Fair value of earnings contingency agreement to be paid in cash: $$300,000.$

$$ Fair value of previously unrecorded identifiable intangibles $(5-$year life$)$: $$2,000,000.$ There are no revaluations of Saddlestone$$s reported net assets.

Information for $2022$ and $2023$:

$$ Saddlestone$$s reported net income for $2022$: $$3,000,000$; for $2023$: $$3,500,000.$

$$ Saddlestone$$s reported other comprehensive income for $2022$: $$100,000$ net income; for $2023$: $$25,000$ net loss.

$$ Saddlestone declared and paid dividends of $$1,000,000$ each year.

$$ Goodwill and identifiable intangibles are not impaired in $2022$; goodwill is impaired by $$200,000$ in $2023.$

Required

a$.$ Prepare the $2022$ and $2023$ journal entries made by Peak to record its investment, using the complete equity method.

Enter numerical answers using all zeros $($do not abbreviate in thousands or in millions$).$

Description Debit Credit

Investment in Saddlestone Answer

$20,000,000$

Answer

$0$

Answer

Accumulated OCI

Answer

$300,000$

Answer

$0$

Answer

Merger expenses

Answer

$250,000$

Answer

$0$

Capital stock Answer

$0$

Answer

$300,000$

Cash Answer

$0$

Answer

$20,000,000$

To record acquistion of Saddlestone.

Answer

Equity in OCI$($L$)$ of Saddlestone

Answer

$100,000$

Answer

$0$

Equity in net income of Saddlestone Answer

$3,000,000$

Answer

$0$

Answer

Investment in Saddlestone

Answer

$0$

Answer

$3,100,000$

To record equity in net income and OCI$($L$)$ for $2022.$

Answer

Cash

Answer

$1,000,000$

Answer

$0$

Answer

Investment in Saddlestone

Answer

$0$

Answer

$1,000,000$

To record receipt of dividends for $2022.$

Investment in Saddlestone Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

To record equity in net income and OCI$($L$)$ for $2023.$

Answer

Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

To record receipt of dividends for $2023.$

b$.$ Prepare the consolidation eliminating entries made at December $31,2023.$

Enter numerical answers using all zeros $($do not abbreviate in thousands or in millions$).$

Ref. Description Debit Credit

$($C$)$ Answer

Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

Dividends$-$Saddlestone

Answer

$0$

Answer

$0$

Investment in Saddlestone

Answer

$0$

Answer

$0$

$($E$)$ Capital stock Answer

$0$

Answer

$0$

Retained earnings Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

$($R$)$ Identifiable intangibles Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

$($O$)$ Amortization expense Answer

$0$

Answer

$0$

Answer

Answer

$0$

Answer

$0$

Indentifiable intangibles

Answer

$0$

Answer

$0$

Answer

Answer

$0$

Mark $1\mathrm{.}00$ out of $1\mathrm{.}00$ Answer

$0$

Please answer all parts of the question.