Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Paramount Corporation acquired its 7 5 percent investment in Sun Corporation on January 1 , 2 0 1 8 , for $ 3 , 1

Paramount Corporation acquired its 75 percent investment in Sun Corporation on January 1,2018, for $3,142,500, and accounts for its investment internally using the complete equity method. At the acquisition date, Sun's book value consisted of $1,000,000 in capital stock and $500,000 in retained earnings, and the estimated fair value of the 25 percent noncontrolling interest was $607,500. The fair values of Suns assets and liabilities were equal to their carrying values, except for the following items:
Fair value less Book value
Accounts receivable $(100,000)
Inventory (100,000)
Equipment (10 years, straight-line)(200,000)
Patents (5 years, straight-line)430,000
Deferred tax liabilities (created as a result of the nontaxable acquisition)80,000
The inventory was sold during the first three years following the acquisition. Deferred tax liabilities of $40,000 were reversed during 20182023. An impairment test made at the end of 2023 indicates a remaining value of $2,000,000 for the goodwill recognized as a result of the acquisition. Suns shareholders equity is $3,200,000, including $2,200,000 of retained earnings, at the end of 2023.
For all answers below: Enter answers using all zeros, do not abbreviate to thousands or millions.
Required
(a) Calculate the amount of goodwill initially recognized as a result of the acquisition, and its allocation to the controlling and noncontrolling interests.
Allocation of goodwill
Goodwill Answer
Paramounts share of goodwill: Answer
0
Noncontrolling interests share of goodwill Answer
0
(b) Calculate the balance in the investment account, carried on Paramounts books, and the value of the noncontrolling interest, reported in the equity section of the consolidated balance sheet, as of the end of 2023.
Balances as of 2023 year-end
Investment in Sun Answer
0
Noncontrolling interest in Sun Answer
0
(c) Assume eliminating entry (C), to reverse Paramounts equity method entries for 2024, has been made. Prepare 2024 eliminating entries (E) and (R) to adjust Suns assets to the correct values as of the beginning of 2024, eliminate the remainder of the investment, and recognize the beginning-of-2024 value of the noncontrolling interest.
Consolidation Journal
Description Debit Credit
(E)
Answer
Shareholders' equity-Sun
Answer
0
Answer
0
Answer
Investment in Sun
Answer
0
Answer
0
Noncontrolling interest in Sun Answer
0
Answer
0
(R)
Answer
Investment in Sun
Answer
Answer
0
Equipment, net Answer
0
Answer
0
Deferred tax liabilities Answer
0
Answer
0
Answer
Goodwill
Answer
0
Answer
Noncontrolling interest in Sun Answer
0
Answer
0

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

College Accounting A Practical Approach

Authors: Jeffrey Slater

12th edition

978-0132772068, 133468100, 013277206X, 9780133468106, 978-0133133233

More Books

Students also viewed these Accounting questions