Please help! Can you explain the thought process of this problem as well? Explai
ID: 2451538 • Letter: P
Question
Please help! Can you explain the thought process of this problem as well? Explain to me like I'm a 10-year old! Thanks in advance!!
P acquired 80% of S on January 1, 2000. Based on market values P paid an an excess of $170,000 over book value for its portion of the firm on acquisition. Based on market values, the controlling portion of the excess was allocated to specific assets and liabilities as follows: $50,000 to buildings (20-year life), $30,000 to identifiable intangibles (10-year life) and $5,000 to inventory (sold during the first year). P uses the equity method to account for its investment in S. Assume there is goodwill impairment of $12,000 in 2008 which was 90% assigned to the controlling interest. There were no other impairments prior to 2008. S reported net income of $200,000 and declared dividends of $75,000 in both 2007 and 2008.
a) What was the remaining portion of the writeup for the controlling interest after one year?
b) What was the total adjustment associated with the consolidation during the first year due to the asset writeups on consolidation?
c) What is the controlling portion of goodwill remaining at the ends of 2007 and 2008?
d) What amount will P record as Equity in Income of S for 2007?
e) What amount will P record as Equity in Income of S for 2008?
Explanation / Answer
Controlling Excess Of P Details Amt $ Life Yearly depreciation/Amortization per year First year amortization 2007 amortization 2008 Amortization Total Excess write up 170,000 Building 50,000 20 2,500 2,500 2,500 2,500 Identifiable Intangibles 30,000 10 3,000 3,000 3,000 3,000 Inventory 5,000 1 5,000 5,000 - - Goodwill(balancing figure) 85,000 10,800 (90% of total impairment) Total Amortization of excess 10,500 5,500 16,300 a Write Up remaining after first year (including goodwill) =170000-10500= $ 159,500 b Total adjustment related to asset write up during first year $ 10,500 c Controlling portion of goodwill remaining after 2007 $ 85,000 Controlling portion of goodwill remaining after 2008 =85000-10800= $ 74,200 d Net Income of S in 2007 200,000 Allocated to P @80% 160,000 Less: amortization of write up in 2007 (5,500) Equity Income of P from S $ 154,500 e Net Income of S in 2008 200,000 Allocated to P @80% 160,000 Less: amortization of write up in 2008 (16,300) Equity Income of P from S $ 143,700