Reference no: EM132549750

Question - On January 1, 2019, Peets Corp acquired 30,000 shares (30% of the outstanding shares) of Sanders at a price of $9.00 per share, giving it significant influence over Sanders. Sanders had net income of $200,000 for the year ended December 31, 2019 and declared and paid dividends of $80,000 to its shareholders on December 31, 2019. On the date of acquisition, Sanders' net book value was $800,000 and there was no difference between the fair value and book value of Sanders' identifiable net assets.

1. Assuming that there was no impairment of any goodwill relating to the acquisition of Sanders's shares during 2019, what would be the balance in Peets Corp.'s investment in Sanders' account as of December 31, 2019?

2. Ignore your answer above and assume that on December 31, 2019 a test for impairment of goodwill relating to the acquisition of Sanders's shares indicated that goodwill was impaired by 40%. What would be the amount of investment income recorded by Peets Corp. relating to its investment in Sanders for the year ended December 31, 2019?

3. Darrell and Frosty Inc. were combined in a purchase transaction. Darrell was able to acquire Frosty at a bargain price. The purchase price was less than the sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed. How should this difference between the purchase price and the fair value of the net identifiable assets be accounted for?

4. What does a negative acquisition differential mean? Will it always result in negative Goodwill? Explain.