Session 4 Consolidating with Intercompany Transactions

Palant Corporation acquired 80% of Strong Companys common stock for $45,500 on January 1, 2020. The book value of Strong was $10,000, and the fair value of Non-controlling interest was $9,500. Strongs assets and liabilities were reported at fair value at the date of acquisition except for the items listed below:

	FV minus BV (i.e. Change)
Land	$8,000
Buildings 7 year remaining life	7,000
Limited Life Intangibles, 5 years	5,000

Goodwill was impaired by $2,000 in 2020 but no further impairment occurred in 2021. The land, buildings, and identifiable intangibles are still held by Strong at the end of 2021.

It is now December 31, 2021. The trial balances of Palant and Strong are provided in the Excel file. Information on intercompany transactions is as follows:

1. On January 2, 2020, Palant sold equipment to Strong for a price of $800. The equipment had an original cost of $1,000 with $700 of accumulated depreciation at the time of sale and a remaining life of 5 years, straight-line.

2. Strong sells merchandise to Palant (for cash) on a continuing basis, at a markup of 20% on cost. Palants 2021 beginning inventory contains $90 in goods purchased from Strong (including markup). Palants 2021 ending inventory contains $120 in goods purchased from Strong (including markup). Total intercompany sales for 2021 were $3,000.

Required

1. Create Book Value, Fair Value, Change schedule to determine total goodwill arising from this acquisition and its allocation as well as the BOY and EOY balances for Land, Buildings, Limited Life Intangibles, and Goodwill.
2. Prepare a Schedule of Equity in Strongs net income, OCI, and dividends for 2021.

c. Prepare a consolidating working paper to consolidate the December 31, 2021 trial balances of Palant and Strong.

	December 31, 2021
	Trial Balances
	Palant	Strong
Current assets	4,800	6,000
Land	8,000	5,000
Buildings & Equipment, Cost	160,000	30,000
Accumulated Depreciation	(14,800)	(4,900)
Intangibles	-	-
Investment in Slicker	44,824	-
Goodwill
Current liabilities	(9,000)	(4,500)
Long-term debt	(158,048)	(15,900)
Capital Stock	(10,000)	(3,000)
Retained Earnings	(18,400)	(9,000)
AOCI - January 1	(2,000)	(1,000)
Non-controlling interest in Slicker	-	-
Dividends	800	400
Revenues	(155,000)	(40,000)
Equity in NI of Slicker	(896)	-
Equity in OCI of Slicker	(80)	-
Cost of Goods Sold	118,000	28,000
Operating Expenses	32,000	9,000
OCI	(200)	(100)
NCI - equity in NI of Slicker
NCI - equity in OCI of Slicker
Total	-	-