Paramount Corporation acquired its 75 percent investment in Sun Corporation in January 2012, for $2,910,000, and accounts for its investment…

Paramount Corporation acquired its 75 percent investment in Sun Corporation in January 2012, for $2,910,000, and accounts for its investment internally using the complete equity method. At the acquisition date, total book value of Sun was $1,500,000, including $800,000 of retained earnings, and the estimated fair value of the 25 percent non-controlling interest was $790,000. 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                                                                                               $(100,000)

Inventory                                                                                                                      (125,000)

Equipment (10 years, straight-line)                                                                           (400,000)

Patents (5 years, straight-line)                                                                                     200,000

Deferred Tax Liability   (created as a result of the nontaxable acquisition)          75,000

The receivables were collected and the inventory sold during the first three years following the acquisition. Deferred tax liabilities of $60,000 were reversed during 2012–2017. An impairment test made at the end of 2017 indicates a remaining value of $2,000,000 for the goodwill recognized as a result of the acquisition. Sun’s stockholders’ equity is $2,500,000 including $1,800,000 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.

                                            Allocation of Goodwill

Total Goodwill:

Paramount’s share of Goodwill:

Non-controlling interests share of Goodwill:

(b) Calculate the balance in the investment account, carried on Paramount’s books, and the value of the non-controlling interest, reported in the equity section of the consolidated balance sheet, as of the end of 2017.

                                                             Balances as of 2017 year-end

Investment in Sun:

Non-controlling interest in Sun:

(c) Assume eliminating entry (C), to reverse Paramount’s equity method entries for 2018, has been made. Prepare 2018 eliminating entries (E) and (R) to adjust Sun’s assets to the correct values as of the beginning of 2018, eliminate the remainder of the investment, and recognize the beginning-of-2018 value of the noncontrolling interest.

                                  Consolidation Journal

Description                                      Debit                                         Credit

(E) Stockholder’s Equity

             Investment in Sun

              Non-controlling Interest in Sun

(R) Goodwill

               Equipment, net

                Deferred Tax Liabilities

                 Investment in Sun

                 Non-controlling interest in Sun