On January 1, 2020, Playtel Inc. acquired all of the stock of San Jose Cable for $250 million in cash. At the date of acquisition, Playtel’s shareholders’ equity accounts were as follows (in thousands): Common Stock, $1 par $5,000 Additional paid-in capital 25,000 Retained deficit (1,000) Treasury Stock (800) Total $28,200 Both companies have a December 31 year-end. At the date of acquisition, San Jose’s reported net assets had book values approximating fair value. However, it had previously unreported indefinite-life identifiable intangibles valued at $50 million, meeting ASC Topic 805 requirements for capitalizations. Impairment losses in 2020 for identifiable intangibles were $1 million. Goodwill from this acquisition was not impaired in 2020. San Jose reported net income of $4 million in 2020, and no paid dividends. Playtel uses the complete equity method to report its investment in San Jose on its own books. Required Calculate the original amount of goodwill for its acquisition. Calculate equity in net income of San Jose, reported on Playtel’s books in 2020. Prepare eliminating entries (C), (E), (R), and (O), required to consolidate Playtel’s trial balance accounts with those of San Jose on December 31, 2020.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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E 4.3

On January 1, 2020, Playtel Inc. acquired all of the stock of San Jose Cable for $250 million in cash. At the date of acquisition, Playtel’s shareholders’ equity accounts were as follows (in thousands):

Common Stock, $1 par	$5,000
Additional paid-in capital	25,000
Retained deficit	(1,000)
Treasury Stock	(800)
Total	$28,200

Both companies have a December 31 year-end. At the date of acquisition, San Jose’s reported net assets had book values approximating fair value. However, it had previously unreported indefinite-life identifiable intangibles valued at $50 million, meeting ASC Topic 805 requirements for capitalizations. Impairment losses in 2020 for identifiable intangibles were $1 million. Goodwill from this acquisition was not impaired in 2020. San Jose reported net income of $4 million in 2020, and no paid dividends. Playtel uses the complete equity method to report its investment in San Jose on its own books.

Required

Calculate the original amount of goodwill for its acquisition.
Calculate equity in net income of San Jose, reported on Playtel’s books in 2020.
Prepare eliminating entries (C), (E), (R), and (O), required to consolidate Playtel’s trial balance accounts with those of San Jose on December 31, 2020.

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