Assume, on January

$1$

$,$

$2$

$0$

$1$

$8$

$,$

$$a parent company acquired a

$9$

$0$

$\%$

$$interest in its subsidiary. The total fair value of the controlling and noncontrolling interest was $

$6$

$6$

$0$

$,$

$0$

$0$

$0$

$$over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following

$[$

A

$]$

$$assets:

$[$

A

$]$

$$Asset Initial

Fair Value

Useful Life

Property, plant, and equipment $

$2$

$2$

$0$

$,$

$0$

$0$

$0$

$1$

$0$

$$years

Customer list

$1$

$3$

$2$

$,$

$0$

$0$

$0$

$5$

$$years

Goodwill

$3$

$0$

$8$

$,$

$0$

$0$

$0$

$$Indefinite

$

$6$

$6$

$0$

$,$

$0$

$0$

$0$

$$

$9$

$0$

$\%$

$$of the Goodwill is allocated to the parent. The parent and the subsidiary report the following pre

$-$

consolidation financial statements at December

$3$

$1$

$,$

$2$

$0$

$2$

$2$

:

Parent Subsidiary Parent Subsidiary

Income statement: Balance sheet:

Sales $

$7$

$,$

$9$

$2$

$0$

$,$

$0$

$0$

$0$

$2$

$,$

$0$

$9$

$0$

$,$

$0$

$0$

$0$

$$Assets

Cost of goods sold

$($

$5$

$,$

$5$

$0$

$0$

$,$

$0$

$0$

$0$

$)$

$($

$1$

$,$

$3$

$2$

$0$

$,$

$0$

$0$

$0$

$)$

$$Cash $

$5$

$5$

$0$

$,$

$0$

$0$

$0$

$$$

$1$

$1$

$0$

$,$

$0$

$0$

$0$

Gross profit

$2$

$,$

$4$

$2$

$0$

$,$

$0$

$0$

$0$

$7$

$7$

$0$

$,$

$0$

$0$

$0$

$$Accounts receivable

$1$

$,$

$0$

$3$

$4$

$,$

$0$

$0$

$0$

$2$

$7$

$5$

$,$

$0$

$0$

$0$

Equity income

$1$

$5$

$4$

$,$

$4$

$4$

$0$

$$ Inventory

$1$

$,$

$3$

$2$

$0$

$,$

$0$

$0$

$0$

$6$

$0$

$5$

$,$

$0$

$0$

$0$

Operating expenses

$($

$1$

$,$

$5$

$4$

$0$

$,$

$0$

$0$

$0$

$)$

$($

$5$

$5$

$0$

$,$

$0$

$0$

$0$

$)$

$$Equity investment

$1$

$,$

$2$

$6$

$7$

$,$

$2$

$0$

$0$

$$

Net income

$1$

$,$

$0$

$3$

$4$

$,$

$4$

$4$

$0$

$2$

$2$

$0$

$,$

$0$

$0$

$0$

$$Property$,$ plant and equipment, net

$3$

$,$

$0$

$8$

$0$

$,$

$0$

$0$

$0$

$9$

$9$

$0$

$,$

$0$

$0$

$0$

Statement of retained earnings: $

$7$

$,$

$5$

$2$

$1$

$,$

$2$

$0$

$0$

$$$

$1$

$,$

$9$

$8$

$0$

$,$

$0$

$0$

$0$

Beginning retained earnings:

$1$

$,$

$9$

$2$

$6$

$,$

$7$

$6$

$0$

$5$

$5$

$0$

$,$

$0$

$0$

$0$

$$Liabilities and stockholders' equity

Net income

$1$

$,$

$0$

$3$

$4$

$,$

$4$

$4$

$0$

$2$

$2$

$0$

$,$

$0$

$0$

$0$

$$Current liabilities

$1$

$,$

$1$

$0$

$0$

$,$

$0$

$0$

$0$

$4$

$4$

$0$

$,$

$0$

$0$

$0$

Dividends

$($

$2$

$2$

$0$

$,$

$0$

$0$

$0$

$)$

$($

$5$

$5$

$,$

$0$

$0$

$0$

$)$

$$Long

$-$

term liabilities

$2$

$,$

$2$

$0$

$0$

$,$

$0$

$0$

$0$

$5$

$5$

$0$

$,$

$0$

$0$

$0$

Ending retained earnings $

$2$

$,$

$7$

$4$

$1$

$,$

$2$

$0$

$0$

$$$

$7$

$1$

$5$

$,$

$0$

$0$

$0$

$$Common stock

$2$

$2$

$0$

$,$

$0$

$0$

$0$

$1$

$1$

$0$

$,$

$0$

$0$

$0$

APIC

$9$

$9$

$0$

$,$

$0$

$0$

$0$

$1$

$6$

$5$

$,$

$0$

$0$

$0$

Retained earnings

$2$

$,$

$7$

$4$

$1$

$,$

$2$

$0$

$0$

$7$

$1$

$5$

$,$

$0$

$0$

$0$

$

$7$

$,$

$2$

$5$

$1$

$,$

$2$

$0$

$0$

$$$

$1$

$,$

$9$

$8$

$0$

$,$

$0$

$0$

$0$

b

$.$

$$Calculate and organize the profits and losses on intercompany transactions and balances.

$($

No intercompany transactions

$)$

c

$.$

$$Compute the pre

$-$

consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary.

Equity investment account at

$1$

$/$

$1$

$/$

$2$

$2$

p

$\%$

$$book value of subsidiary's net assets Answer

$1$

$2$

$9$

$0$

Unamortized p

$\%$

$$AAP Answer

$1$

$3$

$0$

$0$

Answer

$1$

$3$

$1$

$0$

Equity investment account at

$1$

$2$

$/$

$3$

$1$

$/$

$2$

$2$

p

$\%$

$$book value of subsidiary's net assets Answer

$1$

$3$

$2$

$0$

Unamortized p

$\%$

$$AAP Answer

$1$

$3$

$3$

$0$

Answer

$1$

$3$

$4$

$0$

Equity Investment

Answer

$1$

$3$

$5$