On January 1, 2019, Penn Corporation acquired the voting stock of Shea Company at an acquisition cost of $450,000. Some of Shea's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
At the date of acquisition, the plant and equipment had a 10-year remaining life, and the favorable leases had a 5-year remaining life, straight-line. The brand names are indefinite life assets. They were impaired by $3,000 in 2019, and were not impaired in 2020. Goodwill from this acquisition is not impaired as of the beginning of 2020, but goodwill impairment for 2020 is $1,000. Warranty payments connected with the revaluation liability were $500 in 2019 and $1,500 in 2020.
Shea does not pay dividends.
Required
a. Calculate the goodwill recognized with this acquisition.
b. Calculate equity in net income for 2019 and 2020, reported on Penn's books.
c. Calculate the December 31, 2020 balance for Investment in Shea, reported on Penn's books.
d. Present consolidation eliminating entries (C), (E), (R) and (O) to consolidate the December 31, 2020 trial balances of Penn and Shea.

Question

On January 1, 2019, Penn Corporation acquired the voting stock of Shea Company at an acquisition cost of $450,000. Some of Shea's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
  At the date of acquisition, the plant and equipment had a 10-year remaining life, and the favorable leases had a 5-year remaining life, straight-line. The brand names are indefinite life assets. They were impaired by $3,000 in 2019, and were not impaired in 2020. Goodwill from this acquisition is not impaired as of the beginning of 2020, but goodwill impairment for 2020 is $1,000. Warranty payments connected with the revaluation liability were $500 in 2019 and $1,500 in 2020.
  Shea does not pay dividends.
Required
a. Calculate the goodwill recognized with this acquisition.
b. Calculate equity in net income for 2019 and 2020, reported on Penn's books.
c. Calculate the December 31, 2020 balance for Investment in Shea, reported on Penn's books.
d. Present consolidation eliminating entries (C), (E), (R) and (O) to consolidate the December 31, 2020 trial balances of Penn and Shea.

Quizplus · Accepted Answer

The Answer of On January 1, 2019, Penn Corporation acquired the voting stock of Shea Company at an acquisition cost of $450,000. Some of Shea's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
  At the date of acquisition, the plant and equipment had a 10-year remaining life, and the favorable leases had a 5-year remaining life, straight-line. The brand names are indefinite life assets. They were impaired by $3,000 in 2019, and were not impaired in 2020. Goodwill from this acquisition is not impaired as of the beginning of 2020, but goodwill impairment for 2020 is $1,000. Warranty payments connected with the revaluation liability were $500 in 2019 and $1,500 in 2020.
  Shea does not pay dividends.
Required
a. Calculate the goodwill recognized with this acquisition.
b. Calculate equity in net income for 2019 and 2020, reported on Penn's books.
c. Calculate the December 31, 2020 balance for Investment in Shea, reported on Penn's books.
d. Present consolidation eliminating entries (C), (E), (R) and (O) to consolidate the December 31, 2020 trial balances of Penn and Shea.

On January 1, 2019, Penn Corporation Acquired the Voting Stock