Reference no: EM132865809
Question - On February 1, 2021 Pickwick Ltd. paid $382,500 for 85% of the issued and outstanding common shares of Sunnyside Corp. The recorded assets and liabilities of Sunnyside Corp. on February 1, 2021 were:
Cash $125,000
Inventory 125,000
Property and equipment $600,000
Accum. Amortization $200,000 400,000
Goodwill 35,000
Total Assets $685,000
Current Liabilities $85,000
Long Term Liabilities 115,000
Common Shares 225,000
Retained Earnings 260,000
Total Liabilities & Equity $685,000
On February 1, 2021, Sunnyside Corp. inventory had a fair value of $120,000, and the property and equipment (net) had a fair value of $440,000 and Long-Term Liabilities had a fair value of $120,000. The business combination agreement stated that if Sunnyside's earnings exceed $2.50 per share in the next 2 years an additional payment equal to $80,000 would be paid to Sunnyside's shareholders. An actuary valued this as equivalent to $50,000 if paid at the acquisition date.
REQUIRED -
a) Calculate the amount of goodwill resulting from the business combination using the entity theory.
b) Calculate the non-controlling interest at acquisition date using the entity theory - Fair Value Enterprise (FVE).