Reference no: EM132418851
Problem: On December 31, 2017, Smith Company invests $22,000 in Arc Inc., a variable interest entity. In contractual agreements completed on that date, Smith established itself as the primary beneficiary of Arc. Previously, Smith had no equity interest in Arc. Immediately after Smith's investment, Arc presents the following balance sheet:
Cash $22,000 Long-term debt $132,000
Marketing software $154,000 Noncontrolling interest $66,000
Computer equipment $44,000 Smith Co. equity interest $22,000
Total assets $220,000 Total liabilities and equity $220,000
Each of the above amounts represents an assessed fair value at December 31, 2017, except for the marketing software.
Accordingly the December 31 fair value of Arc Inc. is assessed at $88,000.
Required:
Question 1: If the marketing software was undervalued by $22,000, what amounts for Arc Inc. would appear in Smith's December 31, 2017, consolidated financial statements?
Question 2: If the marketing software was overvalued by $22,000, what amounts for Arc Inc. would appear in Smith's December 31, 2017, consolidated financial statements?
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