Comprehensive consolidation subsequent to date of acquisition, AAP computation, goodwill,

upstream and downstream intercompany inventory profits, downstream intercompany

depreciable asset gain$-$Equity method

A parent company acquired $100$ percent of the stock of a subsidiary company on January $1,2018,$ for

$$270,000.$ On this date, the balances of the subsidiary's stockholders' equity accounts were Common

Stock, $$163,800,$ and Retained Earnings, $$17,640.$

On January $1,2018,$ the subsidiary's recorded book values were equal to fair values for all items

except four: $(1)$ accounts receivable had a book value of $$50,400$ and a fair value of $$45,360,(2)$ build$-$

ings and equipment, net had a book value of $$44,100$ and a fair value of $$66,780,(3)$ the Customer List

intangible asset had a book value of $$12,600$ and a fair value of $$65,520,$ and $(4)$ notes payable had a

book value of $$27,000$ and a fair value of $$25,200.$ Both companies use the FIFO inventory method and

sell all of their inventories at least once per year. The net balance of accounts receivable is collected in

the following year. On the acquisition date, the subsidiary's buildings and equipment, net had a remain$-$

ing useful life of $6$ years, the Customer List had a remaining useful life of $7$ years, and notes payable

had a remaining term of $4$ years.

On January $1,2021,$ the parent sold a building to the subsidiary for $$81,900.$ On this date, the

building was carried on the parent's books $($net of accumulated depreciation$)$ at $$63,000.$ Both compa$-$

nies estimated that the building has a remaining life of $6$ years on the intercompany sale date, with no

salvage value.

Each company routinely sells merchandise to the other company, with a profit margin of $25$ per$-$

cent of selling price $($regardless of the direction of the sale$).$ During $2022,$ intercompany sales amount to

$$18,900,$ of which $$10,080$ of merchandise remains in the ending inventory of the parent. On December

$31,2022,$ $$5,040$ of these intercompany sales remained unpaid. Additionally, the subsidiary's December

$31,2021,$ inventory includes $$15,120$ of merchandise purchased in the preceding year from the parent.

During $2021,$ intercompany sales amount to $$22,500,$ and on December $31,2021,$$$3,600$ of these inter$-$

company sales remained unpaid. Following are pre$-$consolidation financial statements of the parent and its

subsidiary for the year ended December $31,2022.$ The parent uses the equity method of pre$-$consolidation

investment bookkeeping.

a$.$ Disaggregate and document the activity for the $100\%$ Acquisition Accounting Premium $($AAP$).$

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

c$.$ Compute the pre$-$consolidation Equity Investment account beginning and ending balances starting

with the stockholders' equity of the subsidiary.

d$.$ Reconstruct the activity in the parent's pre$-$consolidation Equity Investment T$-$account for the

year of consolidation.

e$.$ Complete the consolidating entries according to the C$-$E$-$A$-$D$-$I sequence and complete the

consolidation worksheet.