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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.

 

Top Answer

Solution a) Smith Co. recognizes the excess of net asset fair value of $22,000 as a gain on bargain purchase and accounts all... View the full answer

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