Question

On January 1, 2017, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of San Marco Company. The consideration transferred by Paloma provided a reasonable basis for assessing the total January 1, 2017, fair value of San Marco Company. At the acquisition date, San Marco reported the following owners' equity amounts in its balance sheet Common stock Additional paid-in capital Retained earnings $400,000 60,000 265,000 In determining its acquisition offer, Paloma noted that the values for San Marco's recorded assets and liabilities approximated their fair values. Paloma also observed that San Marco had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on San Marco's books. Paloma expected both cost and revenue synergies from the combination At the acquisition date, Paloma prepared the following fair-value allocation schedule Fair value of San Marco Company Book value of San Marco Company Excess fair value $ 1,900,000 725,000 1,175,000 800,000 S 375,000 to customer base (10-year remaining life) to goodwill At December 31, 2018, the two companies report the following balances: Paloma San Marco Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of San Marco $ (1,843,000 (675,000) 322,000 120,000 11,000 7,000 1,100,000 125,000 275,000 27,500 121,500 S (437,000) $(215,000) $ (2,625,000) (395,000) Net income Retained earnings, 1/1 Net income Dividends declared (437,000) 350,000 $ (2,712,000 (215,000) 25,000 (585,000) Retained earnings, 12/31 Current assets Investment in San Marco Buildings and equipment Copyrights s 1,204,000 430,000 1,854,000 931,000 950,000 $ 4,939,000 $ (485,000 863,000 107,000 $ 1,400,000 (200,000) (155,000) Total assets Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, 12/31 (542,000) (900,000) (300,000) (400,000) (60,000) (2,712,000)_(585,000) (4,939,000) (1,400,000) Total liabilities and equities

Answer 1

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Working	San Marco Fair Value		$ 1,900,000
	San Marco Book Value		$   -725,000
	Fair value in excess of book value		$ 1,175,000
	Excess assigned to
	Customer Base		$     800,000	10 Year	$        80,000
	Goodwill		$     375,000
	Total		$ 1,175,000		$        80,000
Part a
		Paloma	SanMarco	Adjustments & Eliminations					Consolidated
	Income Statement			Debit		Credit		NCI
	Revenues	$ -1,843,000	$   -675,000						$ -2,518,000
	Cost of goods sold	$    1,100,000	$     322,000						$    1,422,000
	Depreciation	$       125,000	$     120,000						$       245,000
	Amortization	$       275,000	$       11,000	E	$        80,000				$       366,000
	Inerest Expense	$         27,500	$         7,000						$         34,500
	Equity earnings in San Marco	$     -121,500		I	$     121,500				$                 -
	Net income	$     -437,000	$   -215,000					$                -	$     -450,500
	Non Controlling Interest							$      -13,500	$        -13,500
									$     -437,000
	Statement of Retained Earnings
	Retained earnings 1/1	$ -2,625,000	$   -395,000	S	$     395,000				$ -2,625,000
	Net income (above)	$     -437,000	$   -215,000						$     -437,000
	Dividends declared	$       350,000	$       25,000			D	$        22,500	$          2,500	$       350,000
	Retained earnings 12/31	$ -2,712,000	$   -585,000					$          2,500	$ -2,712,000
	Balance Sheet
	Current assets	$    1,204,000	$     430,000						$    1,634,000
	Investment in Sea Cliff	$    1,854,000		D	$        22,500	I	$     121,500		$                 -
						S	$     769,500
						A	$     985,500
	Building and Equipment	$       931,000	$     863,000						$    1,794,000
	Copyright	$       950,000	$     107,000						$    1,057,000
	Goodwill	$                 -	$               -	A	$     375,000				$       375,000
	Customr Base	$                 -	$               -	A	$     720,000	E	$        80,000		$       640,000
	Total assets	$    4,939,000	$ 1,400,000						$    5,500,000
	Accounts Payable	$     -485,000	$   -200,000						$     -685,000
	Note Payable	$     -542,000	$   -155,000						$     -697,000
	NCI in san Marco						$        85,500
							$     109,500	$    -195,000	$     -206,000
	Common stock	$     -900,000	$   -400,000	S	$     400,000				$     -900,000
	Additional Paid in cap	$     -300,000	$     -60,000	S	$        60,000				$     -300,000
	Retained earnings 12/31	$ -2,712,000	$   -585,000						$ -2,712,000
	Non Controlling Interest
	Total liabilities and equity	$ -4,939,000	$-1,400,000						$ -5,500,000	$            -
Part b.
If the acquisition-date fair value of the noncontrolling interest was $167,500 both goodwill (NCI portion) and the noncontrolling interest balance would be reduced equally by $22,500