Questions:
On January 1, 2015, Polly Co. purchased all of the outstanding stock of Suzie Co. for $837,500 in consideration. The common stock, additional paid-in capital, and retained earnings of Suzie Co. were $125,000, $37,500, and $482,500, respectively, on the date of the acquisition. A trademark (with a 10-year remaining life) was undervalued by $15,000, and existing technology with a 5-year life was worth $45,000 at the date of acquisition. Any remaining excess fair value was allocated to goodwill.
The December 31, 2016 balances for Suzie Co. and Polly Co. were as follows:
|
Polly Co.
|
Suzie Co.
|
|
Revenues
|
(1,237,500)
|
(262,500)
|
|
Cost of Goods Sold
|
625,000
|
112,500
|
|
Depreciation Expense
|
125,000
|
6,250
|
|
Amortization Expense
|
68,750
|
22,500
|
|
Dividend Income
|
(50,000)
|
-
|
|
Net income
|
(468,750)
|
(121,250)
|
|
Retained earnings, 1/1/16
|
(1,943,750)
|
(562,500)
|
|
Net income
|
(468,750)
|
(121,250)
|
|
Dividends declared
|
312,500
|
50,000
|
|
Retained earnings, 12/31/16
|
(2,100,000)
|
(633,750)
|
|
Current assets
|
1,200,000
|
443,750
|
|
Investment in Polly Co.
|
837,500
|
-
|
|
Equipment (net)
|
956,250
|
281,250
|
|
Trademark
|
293,750
|
125,000
|
|
Existing technology
|
|
562,500
|
|
Goodwill
|
562,500
|
-
|
|
Total assets
|
3,850,000
|
1,412,500
|
|
Liabilities
|
(975,000)
|
(616,250)
|
|
Common Stock
|
(625,000)
|
(125,000)
|
|
Additional paid-in capital
|
(150,000)
|
(37,500)
|
|
Retained earnings, 12/31/16
|
(2,100,000)
|
(633,750)
|
|
Total liabilities and equity
|
(3,850,000)
|
(1,412,500)
|
Required:
Prepare an excel worksheet with 3 tabs.
1) A fair value allocation that shows the calculation of goodwill relative to the acquisition, and calculates the annual amount of amortization. (Hint: not all of the goodwill on Polly Co.'s balance sheet relates to its Suzie acquisition.)
2) A consolidating worksheet that shows the computation of the consolidated balances for Polly Co. and Suzie Co. as of December 31, 2016. Each consolidating journal entry should be labeled with its identifying letter.
3) A consolidating worksheet that simulates a goodwill impairment loss for 2016 (hint: only the amount of goodwill relating to the Suzie Co. acquisition is considered impaired.)