Data for PlanetTwo Communications and its wholly-owned subsidiary, Stage 4 Networks, are given below. PlanetTwo acquired Stage 4 on January 1, 2013. PlanetTwo uses the complete equity method to report its investment in Stage 4, and its accounting year ends December 31.
| (in thousands) | |
| Acquisition cost | $25,000 |
| Stage 4’s shareholders’ equity, January 1, 2013 | 5,000 |
| Stage 4’s total reported net income, 2013–2020 | 10,000 |
| Stage 4’s total dividends paid, 2013–2020 | 3,000 |
| Stage 4’s reported net income, 2021 | 600 |
| Dividends declared and paid by Stage 4, 2021 | 100 |
| Allocation of excess of cost over book value to identifiable net assets, at acquisition date: | |
| Land | (400) |
| Buildings (20-year life, straight-line) | (1,000) |
| Identifiable intangibles (5-year life) | 4,000 |
| Long-term debt discount (10 years to maturity as of January 1, 2013 | 200 |
| Goodwill impairment loss, 2013–2020 | 300 |
| Goodwill impairment loss, 2021 | 60 |
Required
a. Calculate the original goodwill reported for this acquisition.
$Answer (in thousands)
b. Calculate the equity in net income for 2021, reported on PlanetTwo’s books, using the complete equity method.
$Answer (in thousands)
c. Calculate the balance in Investment in Stage 4 Networks at December 31, 2021, reported on PlanetTwo’s books.
$Answer (in thousands)
d. Prepare the eliminating entries necessary to consolidate the financial statements of PlanetTwo and Stage 4 for 2021.
Enter answers in thousands.
| Ref. | Description | Debit | Credit | |
|---|---|---|---|---|
| (C) | AnswerEquity in net income of Stage 4Dividends – Stage 4Shareholders’ equity – Stage 4Investment in Stage 4 | Answer | Answer | |
| AnswerEquity in net income of Stage 4Dividends – Stage 4Shareholders’ equity – Stage 4Investment in Stage 4 | Answer | Answer | ||
| Investment in Stage 4 | Answer | Answer | ||
| (E) | AnswerEquity in net income of Stage 4Dividends – Stage 4Shareholders’ equity – Stage 4Investment in Stage 4 | Answer | Answer | |
| AnswerEquity in net income of Stage 4Dividends – Stage 4Shareholders’ equity – Stage 4Investment in Stage 4 | Answer | Answer | ||
| (R) | AnswerBuildings,netLandLong-term debt | Answer | Answer | |
| AnswerBuildings,netGoodwillLand | Answer | Answer | ||
| AnswerGoodwillLandLong-term debt | Answer | Answer | ||
| AnswerBuildings,netDepreciation expenseGoodwill | Answer | Answer | ||
| Investment in Stage 4 | Answer | Answer | ||
| (O) | AnswerGoodwillInterest expenseLong-term debt | Answer | Answer | |
| AnswerBuildings, netDepreciation expenseGoodwill | Answer | Answer | ||
| AnswerDepreciation expenseGoodwillGoodwill impairment loss | Answer | Answer | ||
| AnswerGoodwill impairment lossInterest expenseLong-term debt | Answer | Answer | ||
| AnswerBuildings, netDepreciation expenseGoodwill impairment loss | Answer | Answer | ||
| AnswerGoodwillGoodwill impairment lossInterest expense | Answer | Answer |
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