Paramount Corporation acquired its 75 percent investment in Sun Corporation in Januar
Paramount Corporation acquired its 75 percent investment in Sun Corporation in January 2012, for $1,455,000 and accounts for its investment internally using the complete equity method. At the acquisition date, total book value of Sun was $750,000 including $400,000 of retained earnings, and the estimated fair value of the 25 percent noncontrolling interest was $395,000. The fair values of Sun's assets and liabilities were equal to their carrying values, except for the following items:
|
Fair value less Book value |
|---|
| Accounts receivable |
$(50,000) |
| Inventory |
(62,500) |
| Equipment (10 years, straight-line) |
(200,000) |
| Patents (5 years, straight-line) |
100,000 |
| Deferred tax liabilities (created as a result of the nontaxable acquisition) |
37,500 |
The receivables were collected and the inventory sold during the first three years following the acquisition. Deferred tax liabilities of $30,000 were reversed during 2012–2017. An impairment test made at the end of 2017 indicates a remaining value of $1,000,000 for the goodwill recognized as a result of the acquisition. Sun's stockholders' equity is $1,250,000 including $900,000 of retained earnings, at the end of 2017.
Required
(a) Calculate the amount of goodwill initially recognized as a result of the acquisition, and its allocation to the controlling and noncontrolling interests.
(a) Calculate the amount of goodwill initially recognized as a result of the acquisition, and its allocation to the controlling and noncontrolling interests.
