Hello,

Could you please help me to solve the following problem:

Park Company acquired 100 percent of Sand Company's outstanding stock for $1,450,000 cash on January 1, 2019 and paid $20,000 in fees to their lawyers for completing the deal.

By the end of 2019 it became clear that the research project that led to the in-process R&D was a failure with no future economic benefits.

Selected amounts from Park's and Sand's separate financial statements at December 31, 2020 are presented on the Project Facts tab in the Excel file provided in Canvas.

Park's January 1, 2020, Retained Earnings balance (before any effect from Sand's 2019 income or consolidation amounts in 2019) is $(930,000) (credit balance).

Park has 500,000 common shares outstanding for EPS calculations and reported $2,943,100 for consolidated assets at 1/1/2020.

Part 1

a)Record the journal entry on Park's books to acquire Sand assuming dissolution occurs, then record the journal entry assuming no dissolution. For the rest of the project, please assume no dissolution.

b) Schedule showing the changes in the Investment in Sand account from acquisition through 12/31/2020 should be performed.

Part 2

Provide the following:

a)Equity method consolidation worksheet

b)Initial value method consolidation worksheet

c)Partial equity method consolidation worksheet

d)Discuss the results found addressing the following:

The effects of alternative investment accounting methods on the parent's trial balances and the final consolidation figures.

The relation between consolidated retained earnings and the parent's retained earnings under each of the investment accounting methods

Which method did you find easiest to apply and why?

Calculate and present the effects of a 2020 total goodwill impairment loss on the following ratios for the consolidated entity: Earnings per share (EPS), Return on assets (ROA), Return on equity (ROE), and Debt to equity. Your worksheets should have the capability to adjust immediately for the possibility that all acquisition goodwill can be considered impaired in 2020. However, make sure they do not show the impairment when you submit your final file.

Below your calculations, discuss the results found. What is the effect on EPS, ROA, ROE, and debt to equity ratios when all of the acquisition related goodwill is considered impaired in 2021? What are some potential upsides and downsides when an impairment loss is recorded? Who is impacted by a goodwill impairment loss being recorded?

Part 4

Assume instead that Sand Company is located in Germany and uses the Euro for its currency. Park's CFO wishes to determine the effect that a change in the value of the Euro would have on the financial results. To help assess the foreign currency exposure associated with the investment in Sand, the CFO requests assistance in comparing results under various exchange rate fluctuations.

a)Using the exchange rates presented under the three different scenarios, translate Sand's 12/31/2020 trial balance. The Euro is Sand's functional currency.

b)Provide a risk assessment for Park regarding how the change in exchange rate could impact net income, cash flows from dividends, and the debt-to-equity ratio. Below your calculations, discuss your findings. Make sure you address the following:

Did the change in rate impact the figures consistently?

When should Park hedge their Euro exposure (when the rate is increasing or decreasing)?

How could Park avoid a negative translation adjustment reported in other comprehensive income?

What are some other strategies Park could use based on your hedging knowledge.

Sand Balance Sheet 1/1/2019 Excess Fair Values December 31, 2020 Trial Balances Park Sand Assets Land 80,000 Revenues $ (1,052,000) $ (427,000) Cash $ 37,000 Brand name 60,000 Indefinite life-unrecognized on Sand's books Operating Expenses 821,000 262,000 Receivables 82,000 Software 415,000 2-year estimated remaining useful life Goodwill Impairment Loss ? Inventory 149,000 In-process R&D 300,000 Income of Sand Land 90,000 Net Income 231,000 165,000 Equipment (net) 225,000 Sand's Retained Earnings Changes Income Dividends Software 315,000 2019 75,000 Retained Earnings - Park 1/1/20 ? Total Assets 898,000 2020 165,000 35,000 Retained Earnings - Sand 1/1/20 (201,000) Net Income (above) (231,000) (165,000) Liabilities and Equity Fair-Value Allocation Schedule 12 pts Dividends Declared 200,000 35,000 Liabilities $ (422,000) Retained Earnings 12/31/20 (31,000 (331,000) Common stock (350,000) Cash 195,000 95,000 Retained earnings (126,000) Receivables 247,000 143,000 Total Liabilities and Equity 898,000 Inventory 415,000 197,000 Investment in Sand ? Land 341,000 85,000 Equipment (net) 240,100 100,000 Software 312,000 Other Intangibles 145,000 Goodwill Total Assets 1,583,100 932,000 Liabilities (1,537,100) (251,000) Common Stock (500,000) (350,000) Retained Earngings (above) (31,000) (331,000 Total Liabilities and Equity (2,068,100) 932,000