Consolidation Working Paper, Three years after acquisition

International Technology Inc. (ITI) acquired all of the voting stock of Global Outsourcing Corporation (GOC) on June 30, 2015, for $330 million in cash and stock, plus an earnings contingency payable at the end of the third year with a fair value of $6 million at the date of acquisition. Within the measurement period, the earnings contingency declined to a fair value of zero and the acquisition price was appropriately adjusted. Both companies have a June 30 year-end.

At June 30, 2015, GOC's total stockholders' equity was $120 million, as follows (in millions):

Common stock, par$ 12Additional paid-in capital180Retained earnings (deficit)(75)Accumulated other comprehensive income9Treasury stock(6)Total$120

At the acquisition date, GOC's inventories were undervalued by $15 million, its property, plant and equipment was overvalued by $180 million, its reported patents and trademarks were undervalued by $30 million, and its long-term debt was undervalued by $9 million. GOC also had previously unreported identifiable intangibles: $15 million of advanced technology and $75 million of customer lists. GOC reports its inventory using the LIFO method, and purchases exceed sales every year. The acquisition date remaining lives of its assets and liabilities are as follows:

Property, plant and equipment, net20 yearsPatents and trademarks5 yearsAdvanced technology5 yearsCustomer listsIndefiniteLong-term debt3 years

The straight-line method is used for limited life assets. Impairment losses on the customer lists were $6 million in fiscal 2017 and $12 million in fiscal 2018. Goodwill impairment losses were $6 million in fiscal 2016, $9 million in fiscal 2017, and $6 million in fiscal 2018.

ITI and GOC at june 30,2018 , are as follows: a. Prepare a schedule that computes the June 30, 2018, investment in GOC balance and 2018 equity in net income on ITY's books. - Use negative signs with your answers that reduce equity in net income and the investment balance. - Use a negative sign for equity in net loss answers. b. Use a working paper to consolidate the trial balances of ITI and GOC at June 30, 2018. Remember to use negative signs with your credit balance answers in the Dr(Cr) columns. Do not use negative signs with your consolidated statement of income answers. - Hint(s): Combine all identifiable intangible assets on the balance sheet. - Use a negative sign with your treasury stock answer. ITI and GOC at june 30,2018 , are as follows: a. Prepare a schedule that computes the June 30, 2018, investment in GOC balance and 2018 equity in net income on ITY's books. - Use negative signs with your answers that reduce equity in net income and the investment balance. - Use a negative sign for equity in net loss answers. b. Use a working paper to consolidate the trial balances of ITI and GOC at June 30, 2018. Remember to use negative signs with your credit balance answers in the Dr(Cr) columns. Do not use negative signs with your consolidated statement of income answers. - Hint(s): Combine all identifiable intangible assets on the balance sheet. - Use a negative sign with your treasury stock