Giant acquired all of Small’s common stock on January 1, 2017, 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, $37,500 of the fair-value price was attributed to undervalued land while $98,000 was assigned to undervalued equipment having a 10-year remaining life. The $64,500 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. The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $12,800. Small declared and paid dividends in the same period. Credits are indicated by parentheses. Giant SmallRevenues$(1,298,800) $(460,000)Cost of goods sold 610,000 115,000 Depreciation expense 190,000 203,000 Equity in income of Small (132,200) 0 Net income$(631,000) $(142,000)Retained earnings, 1/1/21$(1,200,000) $(688,000)Net income (above) (631,000) (142,000)Dividends declared 290,000 120,000 Retained earnings, 12/31/21$(1,541,000) $(710,000)Current assets$181,000 $216,000 Investment in Small 1,031,000 0 Land 490,000 231,000 Buildings (net) 396,000 435,000 Equipment (net) 580,000 384,000 Goodwill 0 0 Total assets$2,678,000 $1,266,000 Liabilities$(887,000) $(386,000)Common stock (250,000) (170,000)Retained earnings(above) (1,541,000) (710,000)Total liabilities and equities$(2,678,000) $(1,266,000) How was the $132,200 Equity in Income of Small balance computed?Determine the totals to be reported by this business combination for the year ending December 31, 2021.Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2021.If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2021, what journal entry would Giant make to record such impairment?

Equity is the portion of a company's value that can be attributed to its owners. The book value of…

Answered: Giant acquired all of Small’s common…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 18E

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Giant acquired all of Small’s common stock on January 1, 2017, 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, $37,500 of the fair-value price was attributed to undervalued land while $98,000 was assigned to undervalued equipment having a 10-year remaining life. The $64,500 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.

The following are individual financial statements for the year ending December 31, 2021. On that date, Small owes Giant $12,800. Small declared and paid dividends in the same period. Credits are indicated by parentheses.

	Giant		Small
Revenues	$	(1,298,800	)	$	(460,000	)
Cost of goods sold		610,000			115,000
Depreciation expense		190,000			203,000
Equity in income of Small		(132,200	)		0
Net income	$	(631,000	)	$	(142,000	)
Retained earnings, 1/1/21	$	(1,200,000	)	$	(688,000	)
Net income (above)		(631,000	)		(142,000	)
Dividends declared		290,000			120,000
Retained earnings, 12/31/21	$	(1,541,000	)	$	(710,000	)
Current assets	$	181,000		$	216,000
Investment in Small		1,031,000			0
Land		490,000			231,000
Buildings (net)		396,000			435,000
Equipment (net)		580,000			384,000
Goodwill		0			0
Total assets	$	2,678,000		$	1,266,000
Liabilities	$	(887,000	)	$	(386,000	)
Common stock		(250,000	)		(170,000	)
Retained earnings(above)		(1,541,000	)		(710,000	)
Total liabilities and equities	$	(2,678,000	)	$	(1,266,000	)

How was the $132,200 Equity in Income of Small balance computed?
Determine the totals to be reported by this business combination for the year ending December 31, 2021.
Prepare a consolidation worksheet for Giant and Small for the year ending December 31, 2021.
If Giant determined that the entire amount of goodwill from its investment in Small was impaired in 2021, what journal entry would Giant make to record such impairment?

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