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, $37,500 of the fair-value price was attributed to undervalued land while $98,000 was assigned to undervalued equipment having a 10-year remaining life. The $64,500 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.

The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $12,800. Small declared and paid dividends in the same period. Credits are indicated by parentheses.

A. How was the $132,200 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?

Required A.

Required B.

Required C.

Required D.

• Record the loss on impairment of goodwill.

\begin{tabular}{|l|} \hline Revenues \\ \hline Cost of goods sold \\ \hline Depreciation expense \\ \hline Income of Small \\ \hline Net income \\ \hline Retained earnings, 1/1/21 \\ \hline Dividends declared \\ \hline Retained earnings, 12/31/21 \\ \hline Current assets \\ \hline Investment in Small \\ \hline Land \\ \hline Building (net) \\ \hline Equipment (net) \\ \hline Goodwill \\ \hline Total assets \\ \hline Liabilities \\ \hline Common stock \\ \hline Retained earnings, 12/31/21 \\ \hline Total liabilities and equity \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|c|} \hline Accounts & & Giant & & Small & Debit & Credit & ConsolidatedTotals \\ \hline Revenues & $ & (1,298,800) & $ & (460,000) & & & \\ \hline Cost of goods sold & & 610,000 & & 115,000 & & & \\ \hline Depreciation expense & & 190,000 & & 203,000 & & & \\ \hline Equity income of Small & & (132,200) & & 0 & & & \\ \hline Net income & $ & (631,000) & $ & (142,000) & & & \\ \hline Retained earning, 1/1/21 & $ & (1,200,000) & $ & (688,000) & & & \\ \hline Net income (above) & & (631,000) & & (142,000) & & & \\ \hline Dividends declared & & 290,000 & & 120,000 & & & \\ \hline Retained earnings, 12/31/21 & $ & (1,541,000) & $ & (710,000) & & & \\ \hline Current assets & $ & 181,000 & $ & 216,000 & & & \\ \hline Investment in Small & & 1,031,000 & & 0 & & & \\ \hline Land & & 490,000 & & 231,000 & & & \\ \hline Buildings (net) & & 396,000 & & 435,000 & & & \\ \hline Equipment (net) & & 580,000 & & 384,000 & & & \\ \hline Goodwill & & 0 & & 0 & & & \\ \hline Total assets & $ & 2,678,000 & $ & 1,266,000 & & & \\ \hline Liabilities & $ & (887,000) & $ & (386,000) & & & \\ \hline Common stock & & (250,000) & & (170,000) & & & \\ \hline Retained earnings (above) & & (1,541,000) & & (710,000) & & & \\ \hline Total liabilities and equity & $ & (2,678,000) & $ & (1,266,000) & 0 & 0 & \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline & \\ \hline Equity in Income of Small & $ \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline & Giant & Small \\ \hline Revenues & $(1,298,800) & (460,000) \\ \hline Cost of goods sold & 610,000 & 115,000 \\ \hline Depreciation expense & 190,000 & 203,000 \\ \hline Equity in income of Small & (132,200) & 0 \\ \hline Net income & (631,000) & (142,000) \\ \hline Retained earnings, 1/1/21 & $(1,200,000) & (688,000) \\ \hline Net income (above) & (631,000) & (142,000) \\ \hline Dividends declared & 290,000 & 120,000 \\ \hline Retained earnings, 12/31/21 & $(1,541,000) & (710,000) \\ \hline Current assets & 181,000 & 216,000 \\ \hline Investment in Small & 1,031,000 & \\ \hline Land & 490,000 & 231,000 \\ \hline Buildings (net) & 396,000 & 435,000 \\ \hline Equipment (net) & 580,000 & 384,000 \\ \hline Goodwill & 0 & 0 \\ \hline Total assets & $2,678,000 & $1,266,000 \\ \hline Liabilities & $(887,000) & (386,000) \\ \hline Common stock & (250,000) & (170,000) \\ \hline Retained earnings(above) & (1,541,000) & (710,000) \\ \hline Total liabilities and equities & $(2,678,000) & $(1,266,000) \\ \hline \end{tabular}