Plaza Hotels acquired a 90 percent interest in Stardust Casinos on January 1, 20
ID: 2552486 • Letter: P
Question
Plaza Hotels acquired a 90 percent interest in Stardust Casinos on January 1, 2017 for $27,000,000. The fair value of the 10 percent noncontrolling interest at the date of acquisition was $3,000,000. Stardust’s date-of-acquisition reported net assets were carried at amounts approximating fair value, except for these items:
Plant and equipment, 10-year life, straight-line, is overvalued by $6,000,000.
Previously unrecorded limited life intangibles, 4-year life, straight-line, were valued at $8,000,000
Capitalstock ..........................$ 300,000
Retained earnings ........................1,650,000
Accumulated other comprehensive income. . . . . . . . . . . . . . 50,000
Total ..............................$2,000,000
Stardust reported net income of $2,800,000 and other comprehensive income of $25,000 in 2017. Stardust did not declare any dividends in 2017. Goodwill from this acquisition is impaired by $200,000 during 2017.
Required:
-Calculate the original goodwill for this acquisition
-Prepare the consolidation eliminating entries (E) and (R) at the date of acquisition.
-Calculate Equity in Net Income of Stardust and Noncontrolling Interest in Net Income for
2017.
-Prepare the consolidation eliminating entries (C), (E), (R), (O) and (N) at December 31, 2017
Explanation / Answer
1. Calculation of Goodwill:
a) Net Assets on 1.1.2017- Total Equity + Changes in FV of assets
- $2000000+ $8000000-$6000000 = $ 4000000
b) Acquisition value - $ 27,000,000
c) Goodwill - $27000000 - $ 4000000 = $ $23000000
2. Entries (E) & (R) are not stated in the extract
3. Net Income of Startdust - $2.8 million
- Equity - 90% of $ 2.8 million = $2.52 million
- Non Controlling Int - 10% of $ 2.8 million = $ .28 million
4. Entries (C) , ( e), (r) ,(O) are not listed