Reference no: EM132679635

Question - Parent Industries bought Subsidiary Inc.'s voting stock on January 1, 2019 for $42,000, when Subsidiary's book value was $8,000. Fair value information on Subsidiary's assets and liabilities at the date of acquisition is as follows:

Property and equipment (P&E) is overvalued by $7,000. P&E has a 10-year remaining life, straight-line.

Previously unreported identifiable intangibles are valued at $8,000. These intangibles have indefinite lives, but testing reveals impairment of $2,000 in 2019 and $1,000 impairment in 2020.

Goodwill reported for this acquisition is not impaired in 2019, but is impaired by $3,000 in 2020.

Parent uses the complete equity method to account for its investment in Subsidiary on its own books. It is now December 31, 2020, two years since the acquisition. The consolidation working paper at December 31, 2020, with the separate trial balances of Parent and Subsidiary is attached to this exam.

Required -

a. Prepare the schedule calculating the initial value of goodwill for this acquisition. Show your work in detail.

b. Calculate Parent's equity in net income of Subsidiary for 2020. Show your work in detail.