On January 1, 2015, Pomegranate Company acquired 80 % of the voting stock of Starfruit Company for $70,000,000 in cash. The fair value of the noncontrolling interest in Starfruit at the date of acquisition was $9,400,000. Starfruit's book value was $11,600,000 at the date of acquisition. Starfruit's assets and liabilities were reported on its books at values approximating fai value, except its plant and equipment (10-year life, straight-line) was overvalued by $13,000,000. Starfruit Company had previously unreported intangible assets, with a market value of $16,000,000 and 5-year life, straight-line, which were capitalized following GAAP. Additional information:

On January 1, 2015, Pomegranate Company acquired 80 % of the voting stock of Starfruit Company for $70,000,000 in cash. The fair value of the noncontrolling interest in Starfruit at the date of acquisition was $9,400,000. Starfruit's book value was $11,600,000 at the date of acquisition. Starfruit's assets and liabilities were reported on its books at values approximating fai value, except its plant and equipment (10-year life, straight-line) was overvalued by $13,000,000. Starfruit Company had previously unreported intangible assets, with a market value of $16,000,000 and 5-year life, straight-line, which were capitalized following GAAP. Additional information:

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

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Question

Cost of goods
sold
Operating
expenses
Other
comprehensive
income
5,500,000
3,000,000
(50,000)
$0
On the 2017 consolidation working paper, eliminating entry (R) reduces the Investment in Starfruit by
O$ 3,600,000
O$64,800,000
O$54,980,000
0$81,000,000

On January 1, 2015, Pomegranate Company acquired 80% of the voting stock of Starfruit Company for $70,000,000 in cash. The fair value of the noncontrolling interest in Starfruit at the
date of acquisition was $9,400,000. Starfruit's book value was $11,600,000 at the date of acquisition. Starfruit's assets and liabilities were reported on its books at values approximating fair
value, except its plant and equipment (10-year life, straight-line) was overvalued by $13,000,000. Starfruit Company had previously unreported intangible assets, with a market value of
$16,000,000 and 5-year life, straight-line, which were capitalized following GAAP.
Additional information:
Pomegranate uses the complete equity method to account for its investment in Starfruit on its own books. Goodwill recognized in this acquisition was impaired by a total of $3,000,000 in
2015 and 2016, and by $1,000,000 in 2017. It is now December 31, 2017, the accounting year-end. Here is Starfruit Company's trial balance at December 31, 2017:
Dr (Cr)
Current assets $15,000,000
Plant &
equipment, net 89,000,000
Intangibles
Liabilities
Capital stock
Retained
earnings,
January 1
Acumulated
other
comprehensive
income,
January 1
Dividends
Sales revenue
1,000,000
(86,000,000)
(500,000)
(14,000,000)
(250,000)
300,000
(13,000,000)

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