On January 1, 2016, Plato Inc. acquired 100% of Socrates Corporation for $3,380 million making Socrates a wholly owned subsidiary. Socrates Corporation reported stockholders equity at December 31, 2015 of $924,880,000. The excess of fair value over the book value of net assets acquired was due to Buildings, with a fair value in excess of book value of 32,000,000 (with a remaining economic life of 20 years); Plant and equipment with a fair value in excess of book value of $23,940,000 (a 14-year remaining economic life); unrecorded patents with a fair value of $367,200,000 (12-year economic life); with the balance attributable to goodwill (indefinite economic life).

Intra-entity sales from Socrates to Plato of $218,064,000 occurred during 2019 and $507,688,000 in 2020. Socrates has a gross profit rate (percentage of sales) on these intra-entity sales of 35%. Of these intra-entity sales $17,980,000 was held in inventory (on the books of Plato) on December 31, 2019, and $25,240,000 in inventory on December 31, 2020.

There were no sales from Plato to Socrates during 2019. During 2020 Plato sold goods costing $48,692,000 to Socrates for $79,250,000. None of this inventory remained on the books of Socrates as at December 31, 2020.

On January 1, 2020, Plato sold equipment with a book value of 28,000,000 (cost $84,000,000 and accumulated depreciation $56,000,000) and a remaining economic life of 5 years to Socrates for $30,400,000.

Plato tests goodwill for impairment annually on October 1. Socrates is maintained as a separate reporting unit for goodwill impairment testing. No impairment charge was necessary prior to 2020. Plato elected to early adopt ASU 2017-04: Simplifying the Test for Goodwill Impairment as of January 1, 2018. Due to a decline in market values, Plato performed a quantitative impairment analysis on October 1, 2020 when the carrying value of Investment in Socrates was $3,575,100,000. The fair value of Socrates at October 1, 2020 is $3,174,400,000.

For 2020, the companies had the following income statement account balances:

Plato Socrates

Sales $2,664,376,000 $948,560,000

Cost of goods sold 1,339,744,000 696,760,000

Depreciation expense 105,864,000 53,480,000

Amortization expense 48,936,000 21,416,000

Operating expenses 483,604,000 116,930,000

Gain on sale 2,400,000 -

Equity income in Socrates Not given -

Net income Not given $59,974,000

Required:

1. Compute the amount of the goodwill impairment charge for 2020. If no goodwill impairment is necessary, explain why.

2. Compute the Equity income in Socrates reported by Plato Inc. on its stand-alone income statement.

3. Prepare the consolidation entries required to eliminate the effects of intra-entity transactions for 2020 and any other consolidation entry that impacts consolidated net income. Provide a brief explanation for each entry. [NOTE: Not enough information is provided to prepare all the necessary consolidation entries for 2020]. The Income Statement for Plato and Socrates is replicated on a separate excel consolidation worksheet.

4. Prepare the consolidated income statement for Plato Inc. for the year ended December 31, 2020. NOTE: The last column on the consolidation worksheet is not an income statement.