On January 1, 2018, Morey, Inc., exchanged $183,200 for 25 percent of Amsterdam
ID: 2391880 • Letter: O
Question
On January 1, 2018, Morey, Inc., exchanged $183,200 for 25 percent of Amsterdam Corporation. Morey appropriately applied the equity method to this investment. At January 1, the book values of Amsterdam’s assets and liabilities approximated their fair values.
On June 30, 2018, Morey paid $630,000 for an additional 70 percent of Amsterdam, thus increasing its overall ownership to 95 percent. The price paid for the 70 percent acquisition was proportionate to Amsterdam’s total fair value. At June 30, the carrying amounts of Amsterdam’s assets and liabilities approximated their fair values. Any remaining excess fair value was attributed to goodwill.
Amsterdam reports the following amounts at December 31, 2018 (credit balances shown in parentheses):
Revenues
$
(251,000
)
Expenses
159,000
Retained earnings, January 1
(278,000
)
Dividends declared, October 1
10,000
Common stock
(500,000
)
Amsterdam’s revenue and expenses were distributed evenly throughout the year and no changes in Amsterdam’s stock have occurred.
Using the acquisition method, calculate the acquisition-date fair value of Amsterdam to be included in Morey's June 30 consolidated financial statements.
Using the acquisition method, calculate the revaluation gain (or loss) reported by Morey for its 25 percent investment in Amsterdam on June 30.
Using the acquisition method, calculate the amount of goodwill recognized by Morey on its December 31 balance sheet (assume no impairments have been recognized).
Using the acquisition method, calculate the noncontrolling interest amount reported by Morey on its June 30 and December 31 consolidated balance sheet.
Revenues
$
(251,000
)
Expenses
159,000
Retained earnings, January 1
(278,000
)
Dividends declared, October 1
10,000
Common stock
(500,000
)
Explanation / Answer
Part A
acquisition-date fair value = 630000/70% = 900000
Part B
Revaluation Gain: 30300
Explanation :
1/1 equity investment in Amsterdam (book value) =$183200
25% income for 1st 6 months ((251000-159000)/2*25%) =$11500
Investmsnt book value at 6/30 =$194700
Fair value of investment at 6/30 (900000*25%)=$225000
Gain on revaluation to fair value =$30300
(The fair value is greater than the investment balance. Hence there will be a gain on the revaluation)
Part C
Goodwill at 12/31: 76000
Explanation :
Fair value of Amsterdam at 6/30 =$900,000
Book value at 6/30 (500000+278000+((251000-159000)/2)=$824000
Excess fair value =$76000
Allocation to goodwill (no impairment) =$76000
Part D
Non-controlling interest: 46800
5% fair value balance at 6/30 (900000*5%) =$45,000
5% income from 6/30 to 12/31 ((251000-159000)/2*5%)= $2300
5% dividends (10000*5%)=($500)
Noncontrolling interest 12/31 =$46800