On January 1, 2019, Parflex Corporation exchanged $344,000 cash for 90 percent of Eagle Corporation’s outstanding voting stock. Eagle’s acquisition date balance sheet follows:                   Cash and receivables $ 15,000   Liabilities $ 76,000   Inventory   35,000   Common stock   150,000   Property and equipment (net)   350,000   Retained earnings   174,000     $ 400,000     $ 400,000       On January 1, 2019, Parflex prepared the following fair-value allocation schedule:           Consideration transferred by Parflex $ 344,000   10% noncontrolling interest fair value   36,000   Fair value of Eagle   380,000   Book value of Eagle   324,000   Excess fair over book value   56,000   to equipment (undervalued, remaining life of 9 years)   18,000   to goodwill (indefinite life) $ 38,000       The companies’ financial statements for the year ending December 31, 2021, follow:     Parflex   Eagle Sales $ (862,000 )   $ (366,000 ) Cost of goods sold   515,000       209,000   Depreciation expense   191,200       67,000   Equity in Eagle's earnings   (79,200 )     0   Separate company net income $ (235,000 )   $ (90,000 )                 Retained earnings 1/1 $ (500,000 )   $ (278,000 ) Net income   (235,000 )     (90,000 ) Dividends declared   130,000       27,000   Retained earnings 12/31 $ (605,000 )   $ (341,000 )                 Cash and receivables $ 135,000     $ 82,000   Inventory   255,000       136,000   Investment in Eagle   488,900       0   Property and equipment (net)   964,000       328,000   Total assets $ 1,842,900     $ 546,000                   Liabilities $ (722,900 )   $ (55,000 ) Common stock—Parflex   (515,000 )     0   Common stock—Eagle   0       (150,000 ) Retained earnings 12/31   (605,000 )     (341,000 ) Total liabilities and owners' equity $ (1,842,900 )   $ (546,000 )     At year-end, there were no intra-entity receivables or payables.   Compute the goodwill allocation to the controlling and noncontrolling interest. Show how Parflex determined its “Investment in Eagle” account balance. Determine the amounts that should appear on Parflex’s December 31, 2021, consolidated statement of financial position and its 2021 consolidated income statement.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2019, Parflex Corporation exchanged $344,000 cash for 90 percent of Eagle Corporation’s outstanding voting stock. Eagle’s acquisition date balance sheet follows:

 

               
Cash and receivables $ 15,000   Liabilities $ 76,000  
Inventory   35,000   Common stock   150,000  
Property and equipment (net)   350,000   Retained earnings   174,000  
  $ 400,000     $ 400,000  
 

 

On January 1, 2019, Parflex prepared the following fair-value allocation schedule:

 

       
Consideration transferred by Parflex $ 344,000  
10% noncontrolling interest fair value   36,000  
Fair value of Eagle   380,000  
Book value of Eagle   324,000  
Excess fair over book value   56,000  
to equipment (undervalued, remaining life of 9 years)   18,000  
to goodwill (indefinite life) $ 38,000  
 

 

The companies’ financial statements for the year ending December 31, 2021, follow:

 

  Parflex   Eagle
Sales $ (862,000 )   $ (366,000 )
Cost of goods sold   515,000       209,000  
Depreciation expense   191,200       67,000  
Equity in Eagle's earnings   (79,200 )     0  
Separate company net income $ (235,000 )   $ (90,000 )
               
Retained earnings 1/1 $ (500,000 )   $ (278,000 )
Net income   (235,000 )     (90,000 )
Dividends declared   130,000       27,000  
Retained earnings 12/31 $ (605,000 )   $ (341,000 )
               
Cash and receivables $ 135,000     $ 82,000  
Inventory   255,000       136,000  
Investment in Eagle   488,900       0  
Property and equipment (net)   964,000       328,000  
Total assets $ 1,842,900     $ 546,000  
               
Liabilities $ (722,900 )   $ (55,000 )
Common stock—Parflex   (515,000 )     0  
Common stock—Eagle   0       (150,000 )
Retained earnings 12/31   (605,000 )     (341,000 )
Total liabilities and owners' equity $ (1,842,900 )   $ (546,000 )
 

 

At year-end, there were no intra-entity receivables or payables.

 

  1. Compute the goodwill allocation to the controlling and noncontrolling interest.

  2. Show how Parflex determined its “Investment in Eagle” account balance.

  3. Determine the amounts that should appear on Parflex’s December 31, 2021, consolidated statement of financial position and its 2021 consolidated income statement.

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