Problem 2. Noncontrolling Interest

Pacer Hotels bought 80% of Southern Resorts' voting stock on January 1, 2020 for $35,000. The fair value of the noncontrolling interest in Southern was $7,000 at the date of acquisition. Fair value information on Southern's assets and liabilities at the date of acquisition is as follows:

	Property and equipment is overvalued by $7,000. P&E has a 10-year remaining life, straight-line.
	Previously unreported identifiable intangibles are valued at $8,000. These intangibles have indefinite lives but testing reveals impairment of $2,000 in 2020.
	Goodwill reported for this acquisition is not impaired in 2020.

The December 31, 2020 trial balances for Pacer and Southern are as follows:

	Pacer Dr (Cr)	Southern Dr (Cr)
Current assets	$ 21,900	$ 10,000
Property & equipment, net	90,000	60,000
Investment in Southern	37,560
Liabilities	(74,500)	(57,500)
Capital stock	(40,000)	(5,000)
Retained earnings, Jan. 1	(30,000)	(3,100)
Treasury stock	2,000	100
Dividends		500
Sales revenue	(84,000)	(50,000)
Equity in NI of Southern	(2,960)
Cost of goods sold	55,000	30,000
Operating expenses	25,000	15,000
Total	$ 0	$ 0

Pacer uses the complete equity method to account for its investment in Southern on its own books.

Required:

Prepare a schedule calculating the initial value of goodwill for this acquisition, and its allocation to the parent and to the noncontrolling interest. (4 pts)

Calculate Pacer's equity in net income of Southern for 2020, reported on Pacer's books, and the noncontrolling interest in consolidated net income for 2020, shown on the 2020 consolidated income statement. (4 pts)

Prepare the consolidation journal entries on December 31, 2020 on the work sheet. (15 pts)

(C)

(E)

(R)

(O)

(N)