P3-26 On July 1, 2016 an investor paid $3,500,000 for 100% of the voting common stock of an investee. The transaction qualifies as a business combination. At that time, investee had the following summarized balance sheet information:

	July 1, 2016
Current Assets	$500,000
PP&E, net	2,800,000
Liabilities	1,400,000
Equity	1,900,000

On July 1, 2016 the FV of the plant and equipment was $700,000 more than its carrying value.The acquisition date fair values approximated their recorded book values for all of the remaining individual net assets of the investee. Related to this transaction, what amount of goodwill must the investor report in the post-acquisition consolidated balance sheet on July 1, 2016?

1. $2,300,000 b. $1,600,000 c. $900,000 d. $700,000

E3-32. Assume that you are charged with assigning fair values related to a $3,765,000 acquisition. You determine that the fair value of the net identifiable tangible assets of $1,850,000.You also conclude that the purchase included a Customer List with a fair value at $337,000.

1. How much goodwill will you record? How is goodwill accounted for subsequent to the acquisition?

1. Now also assume the purchase and sale agreement requires the payment of an additional $850,000 if the subsidiary achieves a certain level of earnings. You estimate the FV of that contingent earnings clause in the agreement to be $216,500. How does this additional information affect your computation of goodwill?

1. [independent from a & c above] Assume the purchase price is $3,765,000 and that the FV of the net identifiable tangible assets is $1,850,000. You also conclude that h purchase included a Customer List that you value at $638,000, and a Patent valued at $1,950,000. How much goodwill will you record in this acquisition? Prepare the JE the Parent would record on their books.

P3-48 Assume that a parent company acquired a subsidiary on January 1, 2012. The purchase price was $396,000 in excess of the subsidiary's book value of SHE on the acquisition date, and the excess was assigned to the following [A] assets

	AAP at Acquisition Date	Useful life
PPE	$72,000	10 years
Customer List	$108,000	6 years
GOODWILL		Indefinite
Total	$396,000

Show the computation to yield the equity income of $78,000 reported by the parent in the 2016 income statement.	Show the computation to yield the Equity Investment balance of $638,400 reported by the parent on December 31, 2016.

1. Show the computation that yields the ending balance of each of the following accounts at December 31, 2016.

PP&E
Customer List
Retained Earnings

1. What is the relation between the parent's net income and consolidated net income?

1. Why aren't the SHE accounts of the sub reflected in the consolidated balance sheet?

1. Complete the consolidation worksheet as of December 31, 2016

			Consolidation Entries	Consolidated
	Parent	Subsidiary	Debits		Credits		Totals
Sales	1,950,000	295,200
Cost of Goods Sold	(1,404,000)	(134,400)
Gross Profit	546,000	160,800
Equity income	78,000	-
Operating expenses	(292,800)	(57,600)
Net income	331,200	103,200
Retained earnings	1,332,000	115,200
Net income	331,200	103,200
Dividends paid	(52,800)	(4,800)
Retained earnings	1,610,400	213,600
Cash & receivables	813,600	410,400
Inventory	757,200	198,000
		-
PP&E, net	4,029,600	243,600
Total Assets	6,238,800	852,000
Current Liabilities	573,600	289,200
Long Term Liabilities	2,400,000	194,400
Common Stock	303,600	15,600
APIC	1,351,200	139,200
Retained Earnings	1,610,400	213,600
Total Liabilities & Equity	6,238,800	852,000