Prepare the Acquisition Differential Calculation and Allocation
Schedule

Prepare the Schedule for the Amortization of the Acquisition
Differential
Prepare the conversion entry or entries at December 31, Year 6 to
convert the numbers from the
cost method to the equity method.
o
Prepare all elimination entries at December 31, Year
6
that would
be required in the preparation of consolidated financial statements
.
o
Prepare the Consolidated Financial Statements including the
Consolidated Balance Sh
eet at December 31, Year 6 and the
Consolidated Statement of Retained Earnings and the
Consolidated Income Statement for the year ended December 31,
Year 6.
The Statement of Retained Earnings for Palm and Storm for the year ended
December 31, Year 6, were as follows:
Retained Earnings
Year Ended December 31, Year 6
Palm
Storm
Retained Earnings, January 1, Year 6
\$50,000
\$120,000
Net income
96,000
50,000
146,000
170,000
Dividends
(36,000)
(20,000)
Retained Earnings, December 31, Year 6
\$110,000
\$150,000
Assume
that the dividends declared December 26, Year 6 were paid by
December 31, Year 6.
When testing for impairment of intangibles, the recoverable amount for
trademarks is given. You will however need to determine the recoverable
amount for goodwill. It will be the higher of fair value less disposal costs and
value in use. When determinin
g value in use, use the discounted future net cash
flows determined by using the 6% rate.
Problem
5

14
o
Prepare the Acquisition Differential Calculation and Allocation
Schedule
o
Prepare the
Schedule for the Amortization of the Acquisition
Differential
o
Prepare the conversion entry or entries at December 31, Year 4 to
convert the numbers from the cost method to the equity method.
o
Prepare all elimination entries at December 31, Year 4 that
would
be required in the preparation of consolidated financial statements.
Hint
s
: If you need Beginning Retained Earnings and the number is
not provided, you can calculate it by working backwards from
Ending Retained Earnings
.
Ending R/e

net income+ dividends = beg r/e
Assume that Albeniz did not declare any dividends in Year 4.
If you’re not given Bach’s dividends, you can figure it out as Albeniz
received 80% of Bach’s dividends and recorded it as dividend
income.
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