1. On January 1, 2021, P Inc. purchases all of the common stock of S. Company for $450,000 cash. At the acquisition date, S stockholders' equity consisted of Common Stock, $300,000, and Retained Earmings, $20,000. It was determined that the investee's balance sheet included land undervalued by $30,000 and equipment undervalued by $5,000. P is a private company and elects the Goodwill Amortization Exception. It estimates a 10-year life for any goodwill. a. Show the calculation to determine goodwill at the date of acquisition. b. What is the entry to record the goodwill amortization under the equity method of accounting?
1. On January 1, 2021, P Inc. purchases all of the common stock of S. Company for $450,000 cash. At the acquisition date, S stockholders' equity consisted of Common Stock, $300,000, and Retained Earmings, $20,000. It was determined that the investee's balance sheet included land undervalued by $30,000 and equipment undervalued by $5,000. P is a private company and elects the Goodwill Amortization Exception. It estimates a 10-year life for any goodwill. a. Show the calculation to determine goodwill at the date of acquisition. b. What is the entry to record the goodwill amortization under the equity method of accounting?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 25E
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Transcribed Image Text:1. On Jamuary 1, 2021, P Inc. purchases all of the common stock of S. Company for $450,000
cash. At the acquisition date, S stockholders' equity consisted of Common Stock, $300,000,
and Retained Earnings, $20,000. It was determined that the investee's balance sheet included
land undervalued by $30,000 and equipment undervalued by $5,000. P is a private company
and elects the Goodwill Amortization Exception. It estimates a 10-year life for any goodwill.
a. Show the calculation to determine goodwill at the date of acquisition.
b. What is the entry to record the goodwill amortization under the equity method of accounting?
c. What amount is goodwill on P consolidated financial statements at year-end?
d. What is the amount of goodwill at year-end if P is a public company?
e. Refer to a. above. In June 2021, P determines that the equipment was not undervalued and that
book value equals fair value. How would goodwill differ from your answer in a, above?
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