Snoopy Co acquired 40% of the equity interests of Woodstock Co for a cash consideration of $430 million, on May 1, 2015. Woodstocks carrying amount and fair value of its the identifiable net assets at this date was $1,023 million.

This investment in Woodstock was equity accounted for by Snoopy up to April 30, 2016. Snoopy then acquired control of Woodstock on May 1, 2016 by acquiring a further 40% interest; at that date, the retained earnings and other components of equity of Woodstock were $273 million and $53 million respectively. The finance director has recorded a negative goodwill figure of $552 million on acquisition, being the cash consideration of $500 million less fair value of the identifiable net assets of $1,052 million. On May 1, 2016, Snoopy Co.s share price was $6.00 and Woodstock Co.s was $1.80. It has been decided that the fair value of the original 40% holding and the fair value of the remaining shares that comprises the non-controlling interest should both be measured using the market value of the shares.

On May 1, 2016, Snoopy had 1,560,000 shares of par value of $1 in issue, while Woodstock had 650,000 shares of par value of $1 in issue.

Required:

a. Explain in a short note if and why Snoopy Co.s use of equity accounting for investment in Woodstock till April 30, 2016 is correct.

b. Explain, with suitable workings, how goodwill should have been calculated on the acquisition of Woodstock.

c. Explain what adjustments will be needed to correct any errors made by the finance director.

d. Give the journal entry to show gain on re-measurement of the original investment at the time of purchase of additional shares of Woodstock. [2+4+3+3]