Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Goodwill, Equity Method, Eliminating Entries, First Year On January 1, 2020, Playtel Inc. acquired 75 percent of the stock of San Jose Cable for $200

Goodwill, Equity Method, Eliminating Entries, First Year

On January 1, 2020, Playtel Inc. acquired 75 percent of the stock of San Jose Cable for $200 million in cash. At the date of acquisition, the fair value of the noncontrolling interest was $50 million, and Playtels shareholders equity accounts were as follows (in thousands):

Common stock, $1 par $5,000
Additional paid-in capital 25,000
Retained deficit (1,000)
Treasury stock (800)
Total $28,200

Both companies have a December 31 year-end. At the date of acquisition, San Joses reported net assets had book values approximating fair value. However, it had previously unreported indefinite-life identifiable intangibles valued at $50 million, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $1 million. Goodwill from this acquisition was not impaired in 2020. San Jose reported net income of $4 million in 2020, and paid no dividends. Playtel uses the complete equity method to report its investment in San Jose on its own books.

Required

a. Calculate the original amount of goodwill for this acquisition and its allocation to the controlling and noncontrolling interest (in thousands).

Total goodwill Answer
Allocation to controlling interests Answer
Allocation to noncontrolling interests Answer

b. Calculate equity in net income of San Jose, reported on Playtels books in 2020, and noncontrolling interest in net income, reported on the consolidated income statement (in thousands).

Use negative signs with answers that reduce net income amounts.

Total Equity in NI Noncontrolling Interest in NI
San Jose's reported net income Answer Answer Answer
Revaluation write-offs:
Identifiable intangibles impairment Answer Answer Answer
Answer Answer Answer

c. Prepare eliminating entries (C), (E), (R), (O) and (N), required to consolidate Playtels trial balance accounts with those of San Jose on December 31, 2020 (in thousands).

Ref. Description Debit Credit
(C) AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit Answer Answer

AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit

Answer Answer
(E) Common stock Answer Answer
AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit Answer Answer

AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit

Answer Answer

Treasury stock

Answer Answer

Investment in San Jose

Answer Answer

Noncontrolling interest in San Jose

Answer Answer
(R) Identifiable intangibles Answer Answer
AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit Answer Answer

Investment in San Jose

Answer Answer

AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit

Answer Answer
(O) AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit Answer Answer

AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit

Answer Answer
(N) AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit Answer Answer

AnswerAdditional paid-in capitalEquity in net income of San JoseGoodwillIdentifiable intangiblesImpairment lossesInvestment in San JoseNoncontrolling interest in net incomeNoncontrolling interest in San JoseRetained deficit

Answer Answer

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Accounting

Authors: Peter Scott

2nd Edition

0198849966, 978-0198849964

More Books

Students also viewed these Accounting questions