Palm Resorts acquired its 70 percent interest in Sun City on January 1, 2017, for $41,750,000. The fair value of the 30 percent noncontrolling interest at the date of acquisition was $14,750,000. Sun City’s date-of-acquisition reported net assets of $5,000,000 were carried at amounts approximating fair value, but it had unrecorded identifiable intangibles, capitalizable per ASC Topic 805, valued at $7,500,000. These intangibles are determined to have limited lives, amortized on a straight-line basis over five years. It is now December 31, 2020, and Sun City reports net income of $10,000,000. Required: Calculate the amount of goodwill originally reported for this acquisition, and its allocation to the controlling and noncontrolling interests. Calculate equity in net income and the noncontrolling interest in net income for 2020, assuming goodwill from this acquisition is impaired by $2,000,000 in 2020.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Palm Resorts acquired its 70 percent interest in Sun City on January 1, 2017, for $41,750,000. The fair value of the 30 percent noncontrolling interest at the date of acquisition was $14,750,000. Sun City’s date-of-acquisition reported net assets of $5,000,000 were carried at amounts approximating fair value, but it had unrecorded identifiable intangibles, capitalizable per ASC Topic 805, valued at $7,500,000. These intangibles are determined to have limited lives, amortized on a straight-line basis over five years. It is now December 31, 2020, and Sun City reports net income of $10,000,000.

Required:

  1. Calculate the amount of goodwill originally reported for this acquisition, and its allocation to the controlling and noncontrolling interests.
  2. Calculate equity in net income and the noncontrolling interest in net income for 2020, assuming goodwill from this acquisition is impaired by $2,000,000 in 2020.
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