Giant acquired all of Small\'s common stock on January 1, 2014, in exchange for

Question

Giant acquired all of Small's common stock on January 1, 2014, in exchange for cash of $770,000. On that day, Small reported common stock of $170,000 and retained earnings of $400,000. At the acquisition date, $60,500 of the fair-value price was attributed to undervalued land while $79,000 was assigned to undervalued equipment having a 10-year remaining life. The $60,500 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill Over the next few years, Giant applied the equity method to the recording of this investment. Following are individual financial statements for the year ending December 31, 2018. On ihat date, Small owes Giant $12,900. Small declared and paid dividends in the same period. Credits are indicated by parentheses. Giant s (1,347,400) (423,000) Cost of goods sold 132,000 146,000 (137, 100)0 633,000 211,500 preciation Equity in income of Smal1 Net income Retained earnings, 1/1/18 Net income (above) Dividends declared s (640,000) (145,000) $(1,680,000) (702,000) (145,000) (640,000) 310,000100,000 $ (2,010,000) (747,000) Retained earnings, 12/31/18 Current assets Investment in Small $ 485,500 1,077,500 521,000 370,000 698,000 300,000 Buildings (net) Equipment (net) Goodwi11 181,000 466,000 340,000 3,152,000 1,287,000 $ (892,000) (370,000) Total assets Liabilities Common stock Retained earnings (above) (250,000) (2,010,000) (170,000) Total liabilities and equities $ (3,152,000) $(1,287,000) a. How was the $137100 Equity in Income of Small balance computed? b. Determine the totals to be reported by this busines c. Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2018. d. If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2018, what journal entry s combination for the year ending December 31, 2018. would Glant make to record such impairment?

Explanation / Answer

a) Calculation of amortization of equipment

$79000/10 = $7900

Calculation of equity in income

$145000 - $7900 = $137100

Consolidated Worksheet

Accounts Giant Small Debit Credit Total Revenue (1347,400) (423,000) (1770,400) Cost of goods sold 633,000 132,000 765,000 Depreciation 211,500 146,000 7900 365,400 Equity income of Small (137,100) 0 137,100 Net income (640,000) (145,000) (640,000) Retained earnings 1/1 (1680,000) (702,000) 702,000 (1680,000) Net income above (640,000) (145,000) (640,000) Dividend declared 310,000 100,000 100,000 310,000 Retained earning 12/31 (2010,000) (747,000) (2010,000) Current Assets 485,500 300,000 12,900 772600 Investment in small 1077,500 0 100,000 0 Land 521,000 181,000 60,500 762,500 Building net 370,000 466,000 836,000 Equipment net 698,000 340,000 47,400 7900 998,500 Goodwill 0 0 60500 60500 Total assets 3152,000 1287,000 3509100 Liabilities (892,000) (370,000) 12,900 1249,100 Common stock (250,000) (170,000) 170,000 250,000 Retained earnings above (2010,000) (747,000) 2010,000 Total liabilities and equity (3152,000) (1287,000) 3509100

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.