Question
75% of the Goodwill is allocated to the parent. Assume that the subsidiary sells inventory to the parent (upstream) which includes that inventory in products
75% of the Goodwill is allocated to the parent. Assume that the subsidiary sells inventory to the parent (upstream) which includes that inventory in products that it ultimately sells to customers outside of the controlled group. You have compiled the following data as of 2015 and 2016:
2015 | 2016 | |
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Transfer price for inventory sale | $600,000 | $700,000 |
Cost of goods sold | (500,000) | (580,000) |
Gross profit | $100,000 | $120,000 |
% Inventory remaining | 25% | 35% |
Gross profit deferred | $25,000 | $42,000 |
EOY receivable/payable | $70,000 | $120,000 |
The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the equity method of pre-consolidation investment bookkeeping. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2016:
Parent | Subsidiary | Parent | Subsidiary | |||
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Income statement: | Balance sheet: | |||||
Sales | $6,700,000 | $2,500,000 | Cash | $600,000 | $400,000 | |
Cost of goods sold | (4,500,000) | (1,500,000) | Accounts receivable | 800,000 | 600,000 | |
Gross profit | 2,200,000 | 1,000,000 | Inventory | 1,000,000 | 800,000 | |
Income (loss) from subsidiary | 122,250 | Equity investment | 1,401,000 | |||
Operating expenses | (2,000,000) | (800,000) | Property, plant and equipment (PPE), net | 3,700,000 | 1,000,000 | |
Net income | $322,250 | $200,000 | $7,501,000 | $2,800,000 | ||
Statement of retained earnings: | ||||||
BOY retained earnings | $2,000,000 | $1,000,000 | Current liabilities | $878,750 | $500,000 | |
Net income | 322,250 | 200,000 | Long-term liabilities | 3,000,000 | 800,000 | |
Dividends | (200,000) | (40,000) | Common stock | 500,000 | 140,000 | |
EOY retained earnings | $2,122,250 | $1,160,000 | APIC | 1,000,000 | 200,000 | |
Retained earnings | 2,122,250 | 1,160,000 | ||||
$7,501,000 | $2,800,000 |
a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. (Complete for the first four years only.)
Unamortized | Unamortized | Unamortized | Unamortized | |||||
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AAP | 2010 | AAP | 2011 | AAP | 2012 | AAP | 2013 | |
1/1/2010 | Amortization | 12/31/2010 | Amortization | 12/31/2011 | Amortization | 12/31/2012 | Amortization | |
100% | ||||||||
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Goodwill | Answer
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75% | ||||||||
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b. Calculate and organize the profits and losses on intercompany transactions and balances.
Downstream | Upstream | |
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Intercompany profit on 1/1/16 | Answer
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Intercompany profit on 12/31/16 | Answer
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f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income.
Use a negative sign with your answer to indicate a reduction to net income.
Parent's stand-alone net income | Answer
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Subsidiary's stand-alone net income | Answer
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Answer75% AAP amortization25% AAP amortization100% AAP amortization75% realized upstream deferred profits25% realized upstream deferred profits100% realized upstream deferred profits75% unrealized upstream deferred profits25% unrealized upstream deferred profits100% unrealized upstream deferred profits
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Answer75% AAP amortization25% AAP amortization100% AAP amortization75% realized upstream deferred profits25% realized upstream deferred profits100% realized upstream deferred profits75% unrealized upstream deferred profits25% unrealized upstream deferred profits100% unrealized upstream deferred profits
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Less: 100% AAP amortization | Answer
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Consolidated net income | Answer
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Parent's stand-alone net income | Answer
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75% Subsidiary's stand-alone net income | Answer
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Answer75% AAP amortization25% AAP amortization100% AAP amortization75% realized upstream deferred profits25% realized upstream deferred profits100% realized upstream deferred profits75% unrealized upstream deferred profits25% unrealized upstream deferred profits100% unrealized upstream deferred profits
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Answer75% AAP amortization25% AAP amortization100% AAP amortization75% realized upstream deferred profits25% realized upstream deferred profits100% realized upstream deferred profits75% unrealized upstream deferred profits25% unrealized upstream deferred profits100% unrealized upstream deferred profits
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Less: 75% AAP amortization | Answer
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Consolidated net income attributable to the controlling interest | Answer
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25% of subsidiary's stand-alone net income | Answer
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Answer75% AAP amortization25% AAP amortization100% AAP amortization75% realized upstream deferred profits25% realized upstream deferred profits100% realized upstream deferred profits75% unrealized upstream deferred profits25% unrealized upstream deferred profits100% unrealized upstream deferred profits
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Answer75% AAP amortization25% AAP amortization100% AAP amortization75% realized upstream deferred profits25% realized upstream deferred profits100% realized upstream deferred profits75% unrealized upstream deferred profits25% unrealized upstream deferred profits100% unrealized upstream deferred profits
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Less: 25% AAP amortization | Answer
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Consolidated net income attributable to the noncontrolling interest | Answer
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PLEASE HELP WITH PART "F". i DONT KNOW HOW TO GET THE ANSWER?
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