Giant acquired all of Smalls common stock on January 1, 2017, in exchange for cash of $770,000.
Question:
Giant acquired all of Smalls common stock on January 1, 2017, in exchange for cash of $770,000. On that day, Small reported common stock of $170,000 and retained earnings of $400,000. At the acquisition date, $46,500 of the fair-value price was attributed to undervalued land while $81,000 was assigned to undervalued equipment having a 10-year remaining life. The $62,500 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill. Over the next few years, Giant applied the equity method to the recording of this investment.
Following are individual financial statements for the year ending December 31, 2018. On that date, Small owes Giant $11000. Small declared and paid dividends in the same period. Credits are indicated by parentheses.
| Giant | Small | |||||||||
| Revenues | $ | (1,265,600 | ) | $ | (450,000 | ) | ||||
| Cost of goods sold | 635,000 | 91,000 | ||||||||
| Depreciation expense | 203,500 | 183,000 | ||||||||
| Equity in income of Small | (167,900 | ) | 0 | |||||||
| Net income | $ | (595,000 | ) | $ | (176,000 | ) | ||||
| Retained earnings, 1/1/18 | $ | (1,520,000 | ) | $ | (632,000 | ) | ||||
| Net income (above) | (595,000 | ) | (176,000 | ) | ||||||
| Dividends declared | 290,000 | 90,000 | ||||||||
| Retained earnings, 12/31/18 | $ | (1,825,000 | ) | $ | (718,000 | ) | ||||
| Current assets | $ | 412,500 | $ | 335,000 | ||||||
| Investment in Small | 1,047,000 | 0 | ||||||||
| Land | 489,000 | 190,000 | ||||||||
| Buildings (net) | 322,000 | 492,000 | ||||||||
| Equipment (net) | 729,000 | 305,000 | ||||||||
| Goodwill | 0 | 0 | ||||||||
| Total assets | $ | 3,000,000 | $ | 1,322,000 | ||||||
| Liabilities | $ | (925,000 | ) | $ | (434,000 | ) | ||||
| Common stock | (250,000 | ) | (170,000 | ) | ||||||
| Retained earnings(above) | (1,825,000 | ) | (718,000 | ) | ||||||
| Total liabilities and equities | $ | (3,000,000 | ) | $ | (1,322,000 | ) | ||||
a, How was the $167,000 Equity in income of small balance computed?
b. Determine the totals to be reported by this business combination for the year ending December 31, 2021.
c. Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2021.
d. If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2021, what journal entry would Giant make to record such impairment?
How was the $167,900 Equity in Income of Small balance computed?
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Determine the totals to be reported by this business combination for the year ending December 31, 2021. (Input all amounts as positive values.)
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c.
Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2021. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Input all amounts as positive values.)
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d.
If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2021, what journal entry would Giant make to record such impairment? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Journal entry worksheet
Record the loss on impairment of goodwill.
Note: Enter debits before credits.
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Expert Answer:
