Question
On January 1, 2018, Prachyl Company acquired 100% of Smith Companys voting stock for $20,000 in cash. Smiths total shareholders equity at January 1, 2018
On January 1, 2018, Prachyl Company acquired 100% of Smith Companys voting stock for $20,000 in cash. Smiths total shareholders equity at January 1, 2018 was $5,000. Some of Smiths assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
| Book Value | Fair Value |
Plant assets, net (10 years, straight-line) | $15,000 | $ 10,000 |
Identifiable intangibles (indefinite life) | 0 | 9,000 |
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Prachyl uses the complete equity method to account for its investment. December 31, 2020 trial balances for Prachyl and Smith follow:
| Prachyl Dr (Cr) | Smith Dr (Cr) |
Current assets | $ 5,000 | $ 2,500 |
Plant assets, net | 28,700 | 22,000 |
Identifiable intangibles | ||
Investment in Smith | 28,400 | |
Goodwill | ||
Liabilities | (20,300) | (11,000) |
Capital stock | (15,000) | (2,000) |
Retained earnings, beginning | (25,000) | (10,000) |
Sales revenue | (25,000) | (14,000) |
Equity in net income of Smith | (800) | |
Cost of goods sold | 20,000 | 9,000 |
Operating expenses | 4,000 | 3,500 |
| $ 0 | $ 0 |
The total Goodwill generated as a result of this acquisition was $11,000.
REQUIRED:
Prepare the C, E, R and O eliminating entries for 2020.
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