On December 31, Year 2, Palm Inc purchased 80% of the outstanding ordinary shares of Storm Company for $440.000. At that date, Storm had ordinary shares of $330,000 and retained earnings of $73,000. In negotiating the purchase price, it was agreed that the assets on Storm's statement of financial position were fairly valued except for plant assets, which had a $53,000 excess of fair value over carrying amount. It was also agreed that Storm had unrecognized intangible assets consisting of trademarks that had an estimated value of $24,000. The plant assets had a remaining useful life of eight years at the acquisition date and the trademarks would be amortized over a 12 year period. Any goodwill arising from this business combination would be tested periodically for Impairment Palm accounts for its investment using the cost method Financial statements for Palm and Storm for the year ended December 31, Year 6 were as follows: STATEMENTS OF FINANCIAL POSITION December 31, Year 6 Palm Store 5200,000 $360,00 440,000 95,000 Assets Plant assets (net) Tnvestment in Store Other investments Notes receivable Tnventory Accounts receivable Cash 230,000 100,000 11,000 $1,250,000 35,000 23, 110,000 225, 4. 5926,000 Shoreholders' Equity and Liabilities Ordinary shares Retained earnings Notes payable Other current liabilities Accounts payable $630,000 240.000 195,000 23,000 121,000 $1.259,000 $330,00 280,000 165,000 61,000 80,000 $926,000 On December 31, Year 2, Palm Inc purchased 80% of the outstanding ordinary shares of Storm Company for $440.000. At that date, Storm had ordinary shares of $330,000 and retained earnings of $73,000. In negotiating the purchase price, it was agreed that the assets on Storm's statement of financial position were fairly valued except for plant assets, which had a $53,000 excess of fair value over carrying amount. It was also agreed that Storm had unrecognized intangible assets consisting of trademarks that had an estimated value of $24,000. The plant assets had a remaining useful life of eight years at the acquisition date and the trademarks would be amortized over a 12 year period. Any goodwill arising from this business combination would be tested periodically for Impairment Palm accounts for its investment using the cost method Financial statements for Palm and Storm for the year ended December 31, Year 6 were as follows: STATEMENTS OF FINANCIAL POSITION December 31, Year 6 Palm Store 5200,000 $360,00 440,000 95,000 Assets Plant assets (net) Tnvestment in Store Other investments Notes receivable Tnventory Accounts receivable Cash 230,000 100,000 11,000 $1,250,000 35,000 23, 110,000 225, 4. 5926,000 Shoreholders' Equity and Liabilities Ordinary shares Retained earnings Notes payable Other current liabilities Accounts payable $630,000 240.000 195,000 23,000 121,000 $1.259,000 $330,00 280,000 165,000 61,000 80,000 $926,000
