Reference no: EM133149415
Question - On January 1, 2017, Pop 2Co acquired a 90% interest in Snap, Inc. for $6,900,000. The 10% non-controlling interest in Snap was determined to have a fair value $700,000 as of the date of acquisition. Snap's stockholders' equity balances on the acquisition date were:
Common Stock $200,000
APIC 2,800,000
Retained Earnings - 1/1/17 2,000,000
Additional Information: Snap had the following items whose fair values differed from their book values on 1/1/17:
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Book Value
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Fair Value
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Inventory (sold in Qtr 1 2017)
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$100,000
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$130,000
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Land
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300,000
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500,000
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Building (15-year life)
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150,000
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450,000
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Equipment (5-year life)
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200,000
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160,000
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Bonds Payable
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300,000
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360,000
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The bonds mature on December 30, 2022. In 2018, Snap sold the land (mentioned above with a book value of $300,000 on 1/1/17) to an unrelated party, Crackle LLC, for $700,000.
During 2020 Snap sold $300,000 of inventory to Pop. Gross profit on this sale was $100,000. $90,000 of these goods were still on hand in Pop's ending inventory at 12/31/20 and were sold to Pop's customers in early 2020.
During 2021, Snap sold an additional $400,000 of inventory to Pop. Snap recognized gross profit of $110,000 on these sales. $100,000 of this inventory was still on hand at 12/31/21. As a result of these 2021 purchases, Pop owed Snap $85,000 at 12/31/21.
On 12/31/21, Pop determined that the goodwill assigned to the Snap reporting unit (all goodwill originally recognized on the acquisition date) was impaired. An impairment loss of $1,570,000 was calculated on the impairment test date.
For the years 2017 to 2020 Snap recorded a total of $3,400,000 of total net income and paid dividends of $900,000.
In 2021 Snap recognized net income of $950,000 in 2021 and paid dividends of $200,000.
Required -
1. How do you find the 2021 amount for "Income from Snap" reported by Pop on its 2021 income statement?
2. What are the debit/credit format entries for 2021 that are needed to prepare the consolidated financial statements?
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