Palmer, a U.S. company, acquired 90% of Scalas voting stock for $32,600 in cash on January 1, 2019, when Scalas book value was $5,000. The

Palmer, a U.S. company, acquired 90% of Scala’s voting stock for $32,600 in cash on January 1, 2019, when Scala’s book value was $5,000. The fair value of the noncontrolling interest at the date of acquisition was $2,400. At the date of acquisition, all of Scala’s assets and liabilities were reported at fair value, except for the following items:

Plant assets Identifiable intangible: Leaseholds Date of Acquisition Book Value $ 20,000 0 Date of

The identifiable intangible meets the GAAP requirements for capitalization. All depreciation and amortization is straight-line. There is no impairment of plant & equipment or identifiable intangibles in 2019, 2020 or 2021.

Total impairment of goodwill arising from this acquisition for the years 2019 and 2020 is $3,000. Goodwill impairment for 2021 is $1,000.

Scala sells inventory to Palmer at a markup of 20% on cost. Here is information on inventory transactions for 2021. Note that the amounts are the balances reported on the books, so you need to calculate markups as appropriate.

Inventory on Palmer's books, acquired from Scala, as of January 1, 2021 Inventory on Palmer's books, acquired

You are preparing the consolidated financial statements for 2021 (the third year since the acquisition). The trial balances of Palmer and Scala at December 31, 2021, collected from the books of Palmer and Scala, are in the consolidation working paper below. Palmer uses the complete equity method to report its investment on its own books.

Required

a. Calculate the total goodwill originally recognized for this acquisition, and its allocation to the controlling interest and the noncontrolling interest.

b. Calculate 2021 equity in net income of Scala, reported on Palmer’s books, and noncontrolling interest in consolidated net income, reported on the 2021 consolidated income statement.

c. Prepare the eliminating entries needed to consolidate the 2021 financial statements of Palmer and Scala.

d. Fill in the working paper to consolidate the December 31, 2021 trial balances of Palmer and Scala. Clearly label eliminating entries (C), (I), (E), (R), (O), and (N).

e. Prepare the consolidated income statement and consolidated statement of comprehensive income for 2021, and the consolidated balance sheet for December 31, 2021.

Current assets Plant assets, net ID intangibles Investment in Scala AOCI, beg. NCI in equity Goodwill Total

Plant assets Identifiable intangible: Leaseholds Date of Acquisition Book Value $ 20,000 0 Date of Acquisition Fair Value $ 8,000 20,000 Remaining Life at Date of Acquisition 12 years 5 years

Step by Step Solution

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Step: 1

To calculate the required values lets go step by step a Calculate the total goodwill originally recognized for this acquisition and its allocation to the controlling interest and the noncontrolling in... blur-text-image