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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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