Equity Method and Eliminating Entries, First Year On July 1, 2019, Prestige Communications acquired all of the voting stock of Southern Light Technologies for $300 million in cash. At the date of acquisition, Southern Light's shareholders' equity accounts were as follows (in millions): Capital stock $26 Retained earnings 142 Accumulated other comprehensive income Treasury stock (1) Total $172 At the date of acquisition, Southern Light's inventories and property, plant and equipment had a fair value that was $2 million and $10 million lower than book value, respectively. It also had previously unreported brand names, valued at $60 million, meeting the ASC 805 criteria for separate capitalization. Southern Light reports inventories using FIFO, its revalued plant and equipment had a 10-year remaining life, straight-line, and the brand names are indefinite-lived. Both companies have June 30 year-ends. Southern Light reported $20 million in net income and $500,000 in other comprehensive income in fiscal 2020, and declared and paid $2.5 million in cash dividends. Impairment testing at the end of fiscal 2020 reveals that Southern Light's brand names are impaired by $3 million and goodwill connected with the acquisition is impaired by $5 million in 2020. Southern Light's beginning inventory was sold during fiscal 2020. Required a. Calculate equity in net income of Southern Light, appearing on Prestige Communication's books, for fiscal 2020. Prestige uses the complete equity method to account for its investment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Equity Method and Eliminating Entries, First Year On July 1, 2019, Prestige Communications acquired all of the voting stock of Southern Light Technologies for $300 million in cash. At the date of acquisition, Southern Light's shareholders' equity accounts were as follows (in millions): Capital stock $26 Retained earnings 142 Accumulated other comprehensive income Treasury stock (1) Total $172 At the date of acquisition, Southern Light's inventories and property, plant and equipment had a fair value that was $2 million and $10 million lower than book value, respectively. It also had previously unreported brand names, valued at $60 million, meeting the ASC 805 criteria for separate capitalization. Southern Light reports inventories using FIFO, its revalued plant and equipment had a 10-year remaining life, straight-line, and the brand names are indefinite-lived. Both companies have June 30 year-ends. Southern Light reported $20 million in net income and $500,000 in other comprehensive income in fiscal 2020, and declared and paid $2.5 million in cash dividends. Impairment testing at the end of fiscal 2020 reveals that Southern Light's brand names are impaired by $3 million and goodwill connected with the acquisition is impaired by $5 million in 2020. Southern Light's beginning inventory was sold during fiscal 2020. Required a. Calculate equity in net income of Southern Light, appearing on Prestige Communication's books, for fiscal 2020. Prestige uses the complete equity method to account for its investment.

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