Reference no: EM132217201

Question - Consolidation Eliminating Entries Several Years After Acquisition

On January 1, 2016, Palomar Resorts acquired 65 percent of the stock of Sahara Hotel & Casino for $41.45 million in cash and stock. The date-of-acquisition fair value of the non-controlling interest was $13.55 million. Sahara's book value on January 1, 2016, was $4 million, consisting of $2.5 million of capital stock and $1.5 million of retained earnings. An evaluation of Sahara's assets and liabilities revealed the following:

• Plant and equipment with a book value of $50 million had a fair value of $35 million. Remaining life 20 years, straight-line.
• Previously unrecorded favorable lease agreements had a fair value of $5 million. Remaining life 4 years, straight-line.
• Gaming licenses with a book value of $1 million had a fair value of $8 million. Remaining life 7 years, straight-line.
• Deferred tax liabilities related to the nontaxable acquisition were estimated at $3 million.

It is now December 31, 2020, 5 years since the acquisition. Sahara's January 1, 2020 retained earnings balance is $12 million. Goodwill impairment through the end of 2019 is $3.6 million, and goodwill impairment for 2020 is $1 million. Reversals of deferred tax liabilities through the end of 2019 are $2.2 million. During 2020, additional reversals total $300,000. Sahara reported net income of $2.55 million in 2020, and declared and paid $200,000 in dividends.

In your answers below, show amounts in thousands.

Required -

a. Calculate goodwill at the date of acquisition, and its allocation to controlling and non-controlling interests.

b. Calculate the December 31, 2020 balance for Palomar's investment in Sahara, assuming Palomar uses the complete equity method.

c. Prepare eliminating entries (C), (E), (R), (O) and (N) to consolidate the trial balances of Palomar and Sahara at December 31, 2020.