On December 31, 2017, PanTech Company invests $33,000 in SoftPlus, a variable in

Question

On December 31, 2017, PanTech Company invests $33,000 in SoftPlus, a variable interest entity. In contractual agreements completed on that date, PanTech established itself as the primary beneficiary of SoftPlus. Previously, PanTech had no equity interest in SoftPlus. Immediately after PanTech’s investment, SoftPlus presents the following balance sheet: Cash $ 33,000 Long-term debt $ 198,000 Marketing software 231,000 Noncontrolling interest 99,000 Computer equipment 66,000 PanTech equity interest 33,000 Total assets $ 330,000 Total liabilities and equity $ 330,000 Each of the above amounts represents an assessed fair value at December 31, 2017, except for the marketing software. Accordingly the December 31 fair value of SoftPlus is assessed at $132,000.

If the marketing software was undervalued by $33,000, what amounts for SoftPlus would appear in PanTech's December 31, 2017, consolidated financial statements?

If the marketing software was overvalued by $33,000, what amounts for SoftPlus would appear in PanTech's December 31, 2017, consolidated financial statements?

Explanation / Answer

Case A) where marketing software was undervalued by $33000

Cash $33000

Marketing software $264000

Computer equilment $66000

Longterm debt (198000)

Non controlling interest (99000)

Pan tech equity interest (33000)

Gain on bargain purchase (33000)

Explanation to above : Implied valuation and excess allocation for surplus

Non controlling interest fair value $99000

Consideration transferred by

Pan tech $33000  

Total business fairvalue $132000

Fairvalue of net assets $165000

(363000-198000)

Excess of net asset value over

Fair value $33000

Case B) where marketing software was overvalued by $33000

Cash $33000

Marketing software $198000

Computer equilment $66000

Longterm debt (198000)

Non controlling interest (99000)

Pan tech equity interest (33000)

Goodwill +33000

Explanation to above : Implied valuation and excess valuation for softplus

Non controlling interest fair value $99000

Consideration transferred by

Pan tech $33000  

Total business fairvalue $132000

Fairvalue of net assets $99000

(297000-198000)

Goodwill $33000 .

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