Giant acquired all of Small’s common stock on January 1, 2011. Over the next few

Question

Giant acquired all of Small’s common stock on January 1, 2011. Over the next few years, Giant applied the equity method to the recording of this investment. At the date of the original acquisition, $102,500 of the fair-value price was attributed to undervalued land while $53,000 was assigned to equipment having a 10-year life. The remaining $69,500 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill.

        Following are individual financial statements for the year ending December 31, 2015. On that date, Small owes Giant $18,900. Small declared and paid dividends in the same period. Credits are indicated by parentheses.

       

      

How was the $179,700 Equity in Income of Small balance computed?

      

Determine the totals to be reported by this business combination for the year ending December 31, 2015.

     

        

Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2015. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

Giant acquired all of Small’s common stock on January 1, 2011. Over the next few years, Giant applied the equity method to the recording of this investment. At the date of the original acquisition, $102,500 of the fair-value price was attributed to undervalued land while $53,000 was assigned to equipment having a 10-year life. The remaining $69,500 unallocated portion of the acquisition-date excess fair value over book value was viewed as goodwill.

        Following are individual financial statements for the year ending December 31, 2015. On that date, Small owes Giant $18,900. Small declared and paid dividends in the same period. Credits are indicated by parentheses.

Explanation / Answer

(a)

(b) Totals reported by the Business Combination -

(c)

Consolidated Worksheet

Net Income of Small = $ 185,000 Less : Amortisation of Equipment ($53,000/10) = $ 5,300 Therefore, net income of small (after amortiation) = $ 179,700 Hence, Giant's share in income of small = $ 179,700*100% = $ 179,700

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