Question Description Phelp Corporation acquired 80% of the voting stock of Sam Inc. at an acquisition cost of $450,000 on January 1, 2020. The fair value of the noncontrolling interest was $75,000. Sam’s equity at the date of acquisition was as follows: Common stock $ 15,000 Additional paid-in capital 30,000 Retained earnings 75,000 Total $ 120,000 Sam’s identifiable net assets were reported at values approximating fair value except that its inventories were undervalued by $15,000, its plant assets were overvalued by $37,500, and it had previously unreported identifiable intangible assets valued at $127,500. The entire beginning inventories were sold in 2020. The remaining useful life of plant assets and intangible assets was both five years with no salvage value. Sam used straight line depreciation and amortization. During 2020, Sam had a net income of $54,000 and Other Comprehensive Loss of $10,000. On December 23, 2020, Sam declared and paid $8,000 cash dividend to its shareholders. Here is the computation of total goodwill and its allocation to the controlling interest and noncontrolling interest, so you can utilize the info to complete the requirements. Total goodwill = ($450,000+75,000) – (120,000+15,000-37,500+127,500)=300,000 Goodwill to controlling interest = 450,000-225,000x80%=270,000 Goodwill to noncontrolling interest= 300,000-270,000 = 30,000 Required: (1) Calculate equity in net income of Sam and non-controlling interest in net income for 2020. (Note: It is not necessary to make the schedule. Writing out the calculation is sufficient). (2) Prepare the working paper entries for Phelp Company and subsidiary for the year ended December 31, 2020.
Phelp Corporation acquired 80% of the voting stock of Sam Inc. at an acquisition cost of $450,000 on January 1, 2020. The fair value of the noncontrolling interest was $75,000. Sam’s equity at the date of acquisition was as follows:
|
Common stock |
$ 15,000 |
|
Additional paid-in capital |
30,000 |
|
|
75,000 |
|
Total |
$ 120,000 |
Sam’s identifiable net assets were reported at values approximating fair value except that its inventories were undervalued by $15,000, its plant assets were overvalued by $37,500, and it had previously unreported identifiable intangible assets valued at $127,500. The entire beginning inventories were sold in 2020. The remaining useful life of plant assets and intangible assets was both five years with no salvage value. Sam used straight line
Here is the computation of total
Total goodwill = ($450,000+75,000) – (120,000+15,000-37,500+127,500)=300,000
Goodwill to controlling interest = 450,000-225,000x80%=270,000
Goodwill to noncontrolling interest= 300,000-270,000 = 30,000
Required:
(1) Calculate equity in net income of Sam and non-controlling interest in net income for 2020.
(Note: It is not necessary to make the schedule. Writing out the calculation is sufficient).
(2) Prepare the working paper entries for Phelp Company and subsidiary for the year ended December 31, 2020.
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