Tapter O C ULISUluateu Pillalltidl Olalella. IILUI LUPO 2, 4 P6.16 Equity Method. Intercompany Merchandise and Service Transactions, Consolid tion Pearl Footwear acquired all of the voting stock of Sebogo Inc. at the beginning of 2016 acquisition cost was $450 million, and Sebogo's book value at that time was $50 million Revol information for Sebogo's identifiable net assets is as follows: Plant assets with a 20-year remaining life, straight-line, were overvalued by $20 million Inventory (FIFO) was overvalued by $5 million (sold in 2017) Previously unrecorded indefinite-lived developed technology was valued at $40 million: impairment to the beginning of 2020 was $1 million, and impairment for 2020 is $3 million.' Goodwill impairment to the beginning of 2020 was $25 million; there is no impairment in 2020. It is now the end of 2020 (five years after the acquisition). Information on intercompany transactions for 2020 is as follows: Pearl provided consulting services costing it $3 million to Schogo at a charge of $5 million. At year- end, Sebogo owes Pearl $500,000 related to the consulting services. Sebogo includes services ex- penses in operating expenses; Pearl includes charges for consulting in its revenues. Sebogo sells merchandise to Pearl on a regular basis, at a markup of 20 percent on cost. Total sales made to Pearl in 2020 were $35 million. Pearl's beginning inventory balance has $3.6 million in merchandise purchased from Sebogo. Pearl's ending inventory balance has $6 million in merchandise purchased from Sebogo. At year-end, Pearl owes Sebogo $600,000 related to merchandise purchases. Pearl sells merchandise to Sebogo on a regular basis, at a markup of 25 percent on cost. Total sales made to Sebogo in 2020 were $50 million. Sebogo's beginning inventory balance has $10 million in merchandise purchased from Pearl. Sebogo's ending inventory balance has $7.5 million in mer- chandise purchased from Pearl. At year-end, Sebogo owes Pearl $800,000 related to merchandise purchases. December 312020. trial balances for Pearl and Sebogo are below. Pearl uses the complete equity memo to report its investment in Sebogo on its own books. Pearl Sebogo Chupun ses the complete equity method purchases. December 31, 2020, trial balances for Pearl and Sebogo are below. Pearl uses the complete equit! to report its investment in Sebogo on its own books. Pearl Dr (Cr) Sebogo Dr (Cr) (in thousands) $ 10.000 120,000 1,000,000 Cash and receivables.. Inventories Plant assets, net........ Investment in Sebogo ... Liabilities......... Capital stock ............... Retained earnings, beginning....... Accumulated other comprehensive income, beginning. Sales revenue......... Equity in net income of Sebogo..... Equity in OCI of Sebogo..... Cost of goods sold........ Operating expenses....... Other comprehensive (income) loss..... Total.... $ 50,000 600.000 5,000,000 481,800 (5,853,400) (100,000) (140,000) (25,000) (350,000) (6,100) (300) 230,000 112,000 1,000 (1,026,700 (25,000) (65,000) (5,000 (200,000) 150,000 42,000 (300) $ 0 Required a. Calculate Equity in Net Income for 2020, reported on Pearl's books. b. Calculate Investment in Sebogo at December 31, 2020, reported on Pearl's books C. Calculate the original balance for goodwill, reported for this acquisition. d. Prepare a consolidation working paper at December 31.2020
