Question
Europe Inc. acquired 75% of Asia Corp.'s common stock for $20,100,000 paid in cash on January 2, 2017. The estimated fair value of the noncontrolling
Europe Inc. acquired 75% of Asia Corp.'s common stock for $20,100,000 paid in cash on January 2, 2017. The estimated fair value of the noncontrolling interest was $5,900,000. Asia's book value at the date of acquisition was $10,000,000, and its identifiable net assets were fairly stated except for previously unreported completed technology, valued at $4,000,000, with a remaining life of 5 years, straight-line. It is now December 31, 2020, and you are preparing consolidated financial statements for Europe and Asia. Following is information on intercompany transactions:
1.On January 2, 2018, Europe sold equipment to Asia for $6 million and recorded a gain of $2 million. The equipment had a remaining life of 10 years at that time.
2.Asia supplies Europe with component parts for its products, at amarkup of 20% on cost. During 2020, Asia made sales totaling $20 million to Europe. Europe had parts purchased for $1.8 million and $2.4 million in its 2020 beginning and ending inventory balances, respectively (Hint: $1.8 million is the unsold inventory from last year and $2.4 million is the unsold inventory of this year).
3.Europe sells materials to Asia for use in its manufacturing processes, with a20% gross profit ratio. During 2020, Europe made sales totaling $15 million to Asia. Asia had materials purchased for $3 million and $2.8 million in its 2020 beginning and ending inventory balances, respectively. (Hint: $3 million is the unsold inventory from last year and $2.8 million is the unsold inventory of this year).
Goodwill arising from this acquisition was impaired by a total of $3 million during the years 2017-2019, and no further goodwill impairment occurred in 2020. The separate December 31, 2020 trial balances of Europe and Asia appear below,beforeEurope's end-year adjustment to record its equity in Asia's income for 2020.
Balance Sheet at December 31, 2020 (in thousands) view photo
Income Statement 2020 (in thousands) view photo
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