Reference no: EM132703449
On January 1, Year 2 Public purchased 30% of the outstanding voting shares of Silent Inc. for $250,000. Silent's Balance Sheet on that date is shown below:
Cash 300,000
Accounts Receivable 75,000
Inventory 25,000
Equipment 250,000
Total Assets $650,000
Accounts Payable 200,000
Common Stock 250,000
Retained Earnings 200,000
Total Liabilities and Equity $650,000
- Silent's carrying values equaled their fair market values on the acquisition date, with the exception of the equipment, which had a fair market value of $290,000 and the inventory, which had a fair market value of $20,000. The equipment had a remaining useful life of five years from the acquisition date. The equipment is being amortized on a straight-line basis. Silent reported Net Incomes of $60,000 and $50,000 for Year 2 and Year 3 respectively. Silent also paid dividends of $25,000 and $30,000 for Year 2 and Year 3 respectively. In Year 3 there was a goodwill impairment loss equal to 10% of the goodwill created at acquisition date.
Required:
Problem a) Prepare the journal entries for Year 2 and Year 3.
Problem b) Prepare the journal entry, if necessary, if the recoverable amount of 40% of investment in Maple was $210,000 at January 10, Year 4 and the drop was considered a permanent decline. If no journal entry is required, briefly explain why.
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