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Problem 2: Palmer, a U.S. company, acquired 90% of Scala's voting stock for $32,600 in cash on January 1, 2019, when Scala's book value was $5,000. The fair value of the noncontrolling interest at the date of acquisition was $2,400. At the date of acquisition, all of Scala's assets and liabilities were reported at fair value, except for the following items: Date of Acquisition Book Value $ 20,000 0 Date of Acquisition Fair Value $ 8,000 20,000 Remaining Life at Date of Acquisition 12 years 5 years Plant assets Identifiable intangible: Leaseholds The identifiable intangible meets the GAAP requirements for capitalization. All depreciation and amortization is straight-line. There is no impairment of plant & equipment or identifiable intangibles in 2019, 2020 or 2021. Total impairment of goodwill arising from this acquisition for the years 2019 and 2020 is $3,000. Goodwill impairment for 2021 is $1,000. Scala sells inventory to Palmer at a markup of 20% on cost. Here is information on inventory transactions for 2021. Note that the amounts are the balances reported on the books, so you need to calculate markups as appropriate. Balance $ 2,880 Inventory on Palmer's books, acquired from Scala, as of January 1, 2021 Inventory on Palmer's books, acquired from Scala, as of December 31, 2021 Total sales from Scala to Palmer, at price charged to Palmer, for 2021 3,600 25,000 You are preparing the consolidated financial statements for 2021 (third year since acquisition). The trial balances of Palmer and Scala at December 31, 2021, collected from the books of Palmer and Scala, are in the consolidation working paper below. Palmer uses the complete equity method to report its investment on its own books. Required a. b. c. Calculate the total goodwill originally recognized for this acquisition, and its allocation to the controlling interest and the noncontrolling interest. Calculate 2021 equity in net income of Scala, reported on Palmer's books, and noncontrolling interest in consolidated net income, reported on the 2021 consolidated income statement. Prepare the eliminating entries needed to consolidate the 2021 financial statements of Palmer and Scala. Fill in the working paper to consolidate the December 31, 2021 trial balances of Palmer and Scala. Clearly label eliminating entries (C), (I), (E), (R), (O), and (N). Prepare the consolidated income statement and consolidated statement of comprehensive income for 2021, and the consolidated balance sheet for December 31, 2021. d. e. Consol. Dr (Cr) Dr Cr Palmer Dr (Cr) $ 26,000 140,000 Scala Dr (Cr) $ 7,000 90,000 Current assets Plant assets, net ID intangibles Investment in Scala 29,430 Goodwill Total liabilities Capital stock Retained earnings, beg (147,843) (5,000) (25,000) (81,700) (2,000) (8,000) (850) 500 AOCI, beg. NCI in equity Sales revenue (150,000) (50,000) 200 OC(I) L Equity in NI of Scala Equity in OCL of Scala Cost of goods sold (275) (1,642) 180 120,000 30,000 Operating expenses 15,000 14,000 NCI in NI NCI in OCI Total $ O $ 0 Problem 2: Palmer, a U.S. company, acquired 90% of Scala's voting stock for $32,600 in cash on January 1, 2019, when Scala's book value was $5,000. The fair value of the noncontrolling interest at the date of acquisition was $2,400. At the date of acquisition, all of Scala's assets and liabilities were reported at fair value, except for the following items: Date of Acquisition Book Value $ 20,000 0 Date of Acquisition Fair Value $ 8,000 20,000 Remaining Life at Date of Acquisition 12 years 5 years Plant assets Identifiable intangible: Leaseholds The identifiable intangible meets the GAAP requirements for capitalization. All depreciation and amortization is straight-line. There is no impairment of plant & equipment or identifiable intangibles in 2019, 2020 or 2021. Total impairment of goodwill arising from this acquisition for the years 2019 and 2020 is $3,000. Goodwill impairment for 2021 is $1,000. Scala sells inventory to Palmer at a markup of 20% on cost. Here is information on inventory transactions for 2021. Note that the amounts are the balances reported on the books, so you need to calculate markups as appropriate. Balance $ 2,880 Inventory on Palmer's books, acquired from Scala, as of January 1, 2021 Inventory on Palmer's books, acquired from Scala, as of December 31, 2021 Total sales from Scala to Palmer, at price charged to Palmer, for 2021 3,600 25,000 You are preparing the consolidated financial statements for 2021 (third year since acquisition). The trial balances of Palmer and Scala at December 31, 2021, collected from the books of Palmer and Scala, are in the consolidation working paper below. Palmer uses the complete equity method to report its investment on its own books. Required a. b. c. Calculate the total goodwill originally recognized for this acquisition, and its allocation to the controlling interest and the noncontrolling interest. Calculate 2021 equity in net income of Scala, reported on Palmer's books, and noncontrolling interest in consolidated net income, reported on the 2021 consolidated income statement. Prepare the eliminating entries needed to consolidate the 2021 financial statements of Palmer and Scala. Fill in the working paper to consolidate the December 31, 2021 trial balances of Palmer and Scala. Clearly label eliminating entries (C), (I), (E), (R), (O), and (N). Prepare the consolidated income statement and consolidated statement of comprehensive income for 2021, and the consolidated balance sheet for December 31, 2021. d. e. Consol. Dr (Cr) Dr Cr Palmer Dr (Cr) $ 26,000 140,000 Scala Dr (Cr) $ 7,000 90,000 Current assets Plant assets, net ID intangibles Investment in Scala 29,430 Goodwill Total liabilities Capital stock Retained earnings, beg (147,843) (5,000) (25,000) (81,700) (2,000) (8,000) (850) 500 AOCI, beg. NCI in equity Sales revenue (150,000) (50,000) 200 OC(I) L Equity in NI of Scala Equity in OCL of Scala Cost of goods sold (275) (1,642) 180 120,000 30,000 Operating expenses 15,000 14,000 NCI in NI NCI in OCI Total $ O $ 0
