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  • Question: Equity Method and Eliminating Entries, First Year On July 1, 2022, Prestige Communications acquired all of the voting stock of Southern Light Technologies for $300 million in cash. At the date of acquisition, Southern Light’s shareholders’ equity accounts were as follows (in millions):Capital stock $26Retained earnings 142Accumulated other comprehensive

     Equity Method and Eliminating Entries, First Year
    On July 1, 2022,Prestige Communications acquired all of the voting stock of Southern Light Technologies for $300million in cash. At the date of acquisition, Southern Light’s shareholders’equity accounts were as follows (in millions):
    Capital stock $26
    Retained earnings 142
    Accumulated other comprehensive income 5
    Treasury stock (1)
    Total $172
    At the date of acquisition, Southern Light’s inventories and property, plant and equipment had a fair value that was $2million and $10million lower than book value, respectively. It also had previously unreported brand names, valued at $60million, meeting the ASC 805criteria for separate capitalization. Southern Light reports inventories using FIFO, its revalued plant and equipment had a 10-year remaining life, straight-line, and the brand names are indefinite-lived. Both companies have June 30year-ends.
    Southern Light reported $20million in net income and $500,000in other comprehensive income in fiscal 2023,and declared and paid $2.5million in cash dividends. Impairment testing at the end of fiscal 2023reveals that Southern Light’s brand names are impaired by $3million and goodwill connected with the acquisition is impaired by $5million in 2023.Southern Light’s beginning inventory was sold during fiscal 2023.
    Required
    a.Calculate equity in net income of Southern Light, appearing on Prestige Communication’s books, for fiscal 2023.Prestige uses the complete equity method to account for its investment.
    Enter answer in thousands (example: $20million equals $20,000in thousands).
    $Answer
    0
    (in thousands)
    b.Prepare Prestige Communications’journal entries during 2023to report its investment in Southern Light, on its own books.
    Enter all numerical answers in thousands (example: $300million equals $300,000 (in thousands).
    Description Debit Credit
    Answer
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    To record acquisition of Southern Light.
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    Equity in net income of Southern Light Answer
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    To record equity in net income.
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    To record receipt of dividends.
    c.Prepare the consolidation eliminating entries (C), (E), (R)and (O),required to consolidate Prestige Communications’accounts with those of Southern Light Technologies at June 30, 2023.
    Enter all numerical answers in thousands (example: $2.5million equals $2,500 (in thousands).
    Ref. Description Debit Credit
    (C)Equity in net income of Southern Light Answer
    0
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    Investment in Southern Light
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    0
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    (E)Capital stock Answer
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    Retained earnings Answer
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    Investment in Southern Light
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    (R)Brand names Answer
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    Plant and equipment, net
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    Investment in Southern Light
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    0
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    0
    (O)Impairment losses Answer
    0
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    Plant and equipment, net Answer
    0
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    Depreciation expense
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    Brand names
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    0
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    Goodwill
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    0
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    0
    Mark 0.00out of 1.00
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    Requirement a 

    To find the equity in the net income of Southern Light, appearing on Prestige Commun...

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