Professional Documents
Culture Documents
$498,000
350,000
148,000
55,000
$203,000
$783,000
580,000
$203,000
$600,000
420,000
180,000
80,000
$100,000
$1,028
1,094
Because fair value < carrying value, there is a potential goodwill impairment loss.
Step 2
Fair value of reporting unit
$1,028
Fair value of net assets excluding goodwill
Tangible assets
$137
Recognized intangibles
326
Unrecognized intangibles
255 718
Implied value of goodwill
310
Carrying value of goodwill
755
Goodwill impairment loss
$445
b.
Tangible assets, net
Goodwill
Patent
Customer list
24.
$84
310
-0-0-
3-2
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
$1,100,000
$700,000
20,000
720,000
$380,000
$600,000
380,000
(80,000)
$900,000
$80,000
$6,000,000
(2,500,000)
$3,500,000
Annual
Remaining
excess
life
amortization
12 yrs. $100,000
7 yrs. 300,000
indefinite
-0$400,000
3-3
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Persoff
(2,720,000)
1,350,000
275,000
370,000
(575,000)
(1,300,000)
Sea Cliff
(2,250,000)
870,000
380,000
25,000
(7,470,000)
(1,300,000)
600,000
(8,170,000)
(3,240,000)
(975,000)
150,000
(4,065,000)
490,000
7,165,000
375,000
Balance Sheet
Current assets
Investment in Sea Cliff
Computer software
Patented technology
Goodwill
Equipment
Total assets
Liabilities
Common stock
Retained earnings 12/31
Total liabilities and equity
E
I
400,000
575,000
(975,000)
S 3,240,000
150,000 D
45,000
80,000
0
4,500,000
5,000,000
(520,000)
(2,000,000)
(8,170,000)
(10,690,000)
(135,000)
(800,000)
(4,065,000)
(5,000,000)
(7,470,000)
(1,300,000)
600,000
(8,170,000)
865,000
D
300,000
800,000
100,000
1,835,000
10,690,000
Consolidated
(4,970,000)
2,220,000
655,000
795,000
0
(1,300,000)
150,000
A 1,000,000
A 1,500,000
A 200,000
575,000 I
4,040,000 S
2,700,000 A
100,000 E
300,000 E
800,000
7,865,000
7,865,000
-01,245,000
2,080,000
300,000
6,335,000
10,825,000
(655,000)
(2,000,000)
(8,170,000)
(10,825,000)
3-4
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
30.
(65 Minutes) (Consolidated totals and worksheet five years after acquisition. Parent
uses equity method. Includes goodwill impairment.)
a. Acquisition-date fair value allocations (given) Remaining Annual excess
life
Land
Equipment
Goodwill
Total
amortizations
$90,000
50,000
60,000
$200,000
-10 yrs.
indefinite
-$5,000
-0$5,000
Because Giant uses the equity method, the $135,000 "Equity in Income of Small"
reflects a $140,000 equity accrual (100% of Smalls reported earnings) less $5,000 in
amortization expense computed above.
b.
Revenues = $1,535,000 (both balances are added together)
Cost of goods sold = $640,000 (both balances are added)
Depreciation expense = $307,000 (both balances are added along with excess
equipment depreciation)
Equity in income of Small = $0 (the parent's Equity in Income of Small balance is
removed and replaced with Small's individual revenue and expense accounts)
Net income = $588,000 (consolidated expenses are subtracted from consolidated
revenues)
Retained earnings, 1/1/15 = $1,417,000 (the parents balance)
Dividends declared = $310,000 (the parent number alone because the subsidiary's
dividends are intra-entity)
Retained earnings, 12/31/15 = $1,695,000 (the parents balance at beginning of the
year plus consolidated net income less consolidated dividends declared)
Current assets = $706,000 (both book balances are added together while the $10,000
intra-entity receivable is eliminated)
Investment in Small = $0 (the parent's asset is removed so that Small's individual
asset and liability accounts can be brought into the consolidation)
Land = $695,000 (both book balances are added together along with the acquisitiondate fair value allocation of $90,000)
Buildings = $723,000 (both book balances are added together)
Equipment = $959,000 (both book balances are added plus the unamortized portion of
the acquisition-date fair value allocation [$50,000 less $25,000 after 5 years of excess
depreciation])
3-5
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
30. b. (continued)
Goodwill = $60,000 (represents the original acquisition-date allocation)
Total assets = $3,143,000 (summation of all consolidated assets)
Liabilities = $1,198,000 (both balances are added together while the $10,000 intraentity payable is eliminated)
Common stock = $250,000 (parent balance only)
Retained earnings, 12/31/15 = $1,695,000 (see above)
Total liabilities and equity = $3,143,000 (summation of all consolidated liabilities
and equity)
b. Worksheet is presented on following page.
c. If all goodwill from the Small investment was determined to be impaired, Giant would
make the following journal entry on its books:
Goodwill impairment loss
Investment in Small
60,000
60,000
After this entry, the worksheet process would no longer require an adjustment in Entry
(A) to recognize goodwill. The impairment loss would simply carry over to the
consolidated income column. The impairment loss would be reported as a separate line
item in the operating section of the consolidated income statement.
3-6
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
30. c. (continued)
GIANT COMPANY AND SMALL COMPANY
Consolidation Worksheet
For Year Ending December 31, 2015
Accounts
Revenues ............................................................
Cost of goods sold .............................................
Depreciation expense.........................................
Equity income of Small ......................................
Net income ....................................................
Giant
(1,175,000)
550,000
172,000
(135,000)
(588,000)
Small
(360,000)
90,000
130,000
-0(140,000)
(1,417,000)
(588,000)
310,000
(1,695,000)
(620,000)
(140,000)
110,000
(650,000)
Consolidation Entries
Debit
Credit
(E) 5,000
(I) 135,000
(S) 620,000
(D) 110,000
398,000
995,000
318,000
-0-
Land .................................................................
Buildings (net) ....................................................
Equipment (net) ..................................................
Goodwill ..............................................................
Total assets ...................................................
440,000
304,000
648,000
-02,785,000
165,000
419,000
286,000
-01,188,000
(A) 90,000
Liabilities .............................................................
Common stock....................................................
Retained earnings (above) .................................
Total liabilities and equity ............................
(840,000)
(250,000)
(1,695,000)
(2,785,000)
(368,000)
(170,000)
(650,000)
(1,188,000)
(P) 10,000
(S)170,000
(D) 110,000
(A) 30,000
(A) 60,000
1,230,000
(P) 10,000
(S) 790,000
(A) 180,000
(I) 135,000
(E)
5,000
1,230,000
Consolidated
Totals
(1,535,000)
640,000
307,000
-0(588,000)
(1,417,000)
(588,000)
310,000
(1,695,000)
706,000
-0-
695,000
723,000
959,000
60,000
3,143,000
(1,198,000)
(250,000)
(1,695,000)
(3,143,000)
3-7
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
31. (45 Minutes) (Consolidated totals and worksheet two years after acquisition. Parent uses
initial value method. Includes question comparing initial value and equity methods).
a. 12/31/2015
Sales
Cost of goods sold
Interest expense
Depreciation expense
Amortization expense
Dividend income
Net Income
Pinnacle
(7,000,000)
4,650,000
255,000
585,000
(50,000)
(1,560,000)
(190,000)
(5,000,000)
(1,560,000)
560,000
(6,000,000)
(1,350,000)
(190,000)
50,000
(1,490,000)
Cash
Accounts receivable
Inventory
Investment in Strata
433,000
1,210,000
1,235,000
3,200,000
165,000
200,000
1,500,000
Buildings (net)
Licensing agreements
Goodwill
Total Assets
5,572,000
2,040,000
1,800,000
Accounts payable
Long-term debt
Common stock - Pinnacle
Common stock - Strata
Retained earnings 12/31/15
Total Liabilities and OE
350,000
12,000,000
(300,000)
(2,700,000)
(3,000,000)
(6,000,000)
(12,000,000)
Strata
(3,000,000)
1,700,000
160,000
350,000
600,000
30,000
50,000
S 1,350,000
20,000
*C
240,000
50,000
85,000
*C
240,000
S 2,850,000
A 590,000
A
E
A
270,000
20,000
400,000
E
A
(715,000)
(2,000,000)
85,000
(1,500,000)
(1,490,000)
(5,705,000)
S 1,500,000
30,000
80,000
5,705,000
3,945,000
3,945,000
Consolidated
(10,000,000)
6,350,000
415,000
965,000
580,000
0
(1,690,000)
(5,240,000)
(1,690,000)
560,000
(6,370,000)
598,000
1,325,000
2,735,000
0
7,852,000
1,740,000
750,000
15,000,000
(930,000)
(4,700,000)
(3,000,000)
0
(6,370,000)
(15,000,000)
3-9
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
34. (35 minutes) (Contingent performance obligation and worksheet adjustments for equity
and initial value methods.)
a.
500,000
35,000
465,000
b.
12/31/14 Loss from increase in contingent performance obligation
Contingent performance obligation
5,000
5,000
50,000
50,000
c. Equity Method
Common stock- Wolfpack
Retained earnings-Wolfpack
Investment in Wolfpack
200,000
180,000
380,000
Royalty agreements
Goodwill
Investment in Wolfpack
90,000
60,000
65,000
Investment in Wolfpack
Dividends declared
35,000
Amortization expense
Royalty agreements
10,000
150,000
65,000
35,000
10,000
30,000
30,000
Common stock
Retained earnings-Wolfpack
Investment in Wolfpack
200,000
180,000
380,000
3-10
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
34. (continued)
36.
Royalty agreements
Goodwill
Investment in Wolfpack
90,000
60,000
Dividend income
Dividends declared
35,000
Amortization expense
Royalty agreements
10,000
150,000
35,000
10,000
Remaining
life
$54,400
8 yrs.
(10,000)
20 yrs.
$21,600 indefinite
Annual excess
amortization
$6,800
(500)
-0$6,300
$206,000
40,000
(6,300)
20,000
(6,300)
10,000
(6,300)
$257,100
3-11
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
36. (continued)
b. Equity in subsidiary earnings:
Income accrual ................................................................
Excess amortizations (Schedule 1) ..............................
Equity in subsidiary earnings ..................................
$30,000
(6,300)
$23,700
$414,000
(272,000)
(6,300)
$135,700
d. Consolidated equipment:
Book values added together .........................................
Acquisition-date fair value allocation ..........................
Excess depreciation ($6,800 3) ..................................
Consolidated equipment ..........................................
$370,000
54,400
(20,400)
$404,000
e. Consolidated buildings:
Book values added together .........................................
Acquisition-date fair value allocation ...........................
Excess depreciation ($500 3) .....................................
Consolidated buildings .............................................
$288,000
(10,000)
1,500
$279,500
$21,600
$290,000
$410,000
Tyler's balance of $410,000 is equal to the consolidated total because the equity
method has been applied.
3-12
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.