Consolidation Eliminating Entries at End of First Year

Peak Entertainment acquires 60 percent of its subsidiary Saddlestone Inc. on January 1, 2016. In preparing to consolidate Peak and Saddlestone at December 31, 2016, we assemble the following information:

Value of stock given up to acquire Saddlestone: $10,000,000.

Direct merger costs: $250,000.

Saddlestone's stockholders' equity at acquisition: $7,200,000.

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.

Goodwill and identifiable intangibles are not impaired in 2016.

Fair value of the 40 percent noncontrolling interest at acquisition: $6,500,000.

Saddlestone's net income in 2016: $3,000,000.

Saddlestone's dividends declared and paid in 2016: $1,000,000.

Peak uses the complete equity method to report the investment on its own books.

Required

(a) Calculate total goodwill and its allocation to the controlling and noncontrolling interests.

Allocation of goodwill between controlling and noncontrolling interest:
Total goodwill	$Answer
Peaks goodwill:	Answer
Goodwill to noncontrolling interest	$Answer

(b) Calculate equity in net income for 2016, as reported on Peak's books, and the noncontrolling interest in net income, as reported on the consolidated income statement for 2016.

2016 equity in net income and noncontrolling interest in net income:
Total	$Answer
Equity in NI:	Answer
Noncontrolling interest in NI	$Answer

(c) Prepare the consolidation eliminating entries made at December 31, 2016.

Consolidation Journal
Description	Debit	Credit
(C)
AnswerIdentifiable intangiblesEquity in net income of SaddlestoneCashDividends - Saddlestone	Answer	Answer
AnswerEquity in net income of SDividends - SaddlestoneIdentifiable intangiblesCash	Answer	Answer
Investment in Saddlestone	Answer	Answer
(E)
AnswerIdentifiabl intangiblesStockholders' equity-Saddlestone, 1/1CashInvestment in Saddlestone	Answer	Answer
AnswerCashIdentifiabl intangiblesInvestment in SaddlestoneStockholders' equity-Saddlestone, 1/1	Answer	Answer
Noncontrolling interest in Saddlestone	Answer	Answer
(R)
AnswerAmortization expenseCashIdentifiable intangiblesInvestment in Saddlestone	Answer	Answer
Goodwill	Answer	Answer
AnswerCashInvestment in SaddlestoneIdentifiable intangiblesAmortization expense	Answer	Answer
Noncontrolling interest in Saddlestone	Answer	Answer
(O)
AnswerDividends - SaddlestoneIdentifiable intangiblesCashAmortization expense	Answer	Answer
AnswerIdentifiable intangiblesDividends - SaddlestoneAmortization expenseCash	Answer	Answer
(N)
AnswerDividends - SaddlestoneIdentifiable intangiblesNoncontrolling interest in income of SaddlestoneCash	Answer	Answer
AnswerCashNoncontrolling interest in income of SaddlestoneIdentifiable intangiblesDividends - Saddlestone	Answer	Answer
Noncontrolling interest in Saddlestone	Answer	Answer