Part 2: Consolidation - Equity Method

Assume that Pauly D Company obtains all of the outstanding common stock of Snooki Company on January 1, 2020. Pauly D acquires this stock for $1,000,000 in cash.

The book values as well as the appraised fair values of Snooki's accounts follow:

Book Values 1/1/20 Fair Values 1/1/20 Difference

Current Assets 350,000 350,000 -

Trademarks (indefinite life) 240,000 260,000 20,000

Patented technology (10 yr remaining life) 310,000 450,000 140,000

Equipment (5 year remaining life) 190,000 140,000 (50,000)

Liabilities (400,000) (400,000) -

Net book value $690,000 $800,000 $110,000

Common Stock $40 par value (270,000)

Additional paid-in-capital (20,000)

Retained earnings, 1/1/20 (400,000)

Pauly D considers the economic life of Snooki's trademarks as having an indefinite life. For definite lived assets acquired in the combination, we assume straight-line amortization and depreciation with no salvage value.

Step 1:Perform an Allocation of Purchase Price and identify if Pauly D should recognize Goodwill or a Gain on Bargain Purchase (10 pts)

Consideration Transferred 1,000,000

Book Value of Snooki

Excess FV over Book Value -

Allocation to specific accounts based on fair values:

-

$-

Step 2: Fill in the Amortization Schedule and calculate the annual amoritzation (10 pts)

Account Allocation Remaining Useful Life Annual Excess Amortization

Total Annual Amortization: $-

Step 3: Journal Entries for Pauly D Company for FY20 (10 pts)

Assume that Snooki earns income of $150,000 during the year, declares a $50,000 cash dividend on September 1, and pays that dividend on September 8. make all the necessary journal entries for Pauly D Company's Investment in Snooki Company for FY20.

Account Debit Credit

Step 4: Make all consolidation entries needed and the consolidated financials as of 12/31/20. (25 pts)

Accounts Pauly D Co. Snooki Co. Debits Credits Consolidated Statements

Income Statement

Revenues (1,500,000) (450,000)

COGS 700,000 232,000

Amortization Expense 120,000 32,000 E

Depreciation Expense 80,000 36,000 E

Equity in Subsidiary Earnings - I

Net Income (600,000) (150,000) -

Stmt of Ret. Earnings

Retained Earnings, 1/1 (840,000) (400,000) S

Net Income (above) (600,000) (150,000)

Dividends Declared 120,000 50,000 D

Retained Earnings, 12/31 (1,320,000) (500,000) -

Balance Sheet

Current Assets 1,000,000 450,000

Invetment in Sun - D S

A

I

Trademarks 600,000 240,000 A

Patented technology 370,000 310,000 A E

Equipment (net) 250,000 190,000 E A

Goodwill - - A

Total Assets 2,220,000 1,190,000 -

Liabilities (980,000) (400,000)

Common Stock (750,000) (270,000) S

Additional Paid in Cap (120,000) (20,000) S

Retained Earnings, 12/31 (1,320,000) (500,000)

Total Liab + OE. (3,170,000) (1,190,000) - - -