Consolidation related simulation example: Millennium Capital Management, Inc., (MCM) acquired a 90% interest in NextGen, Inc. MCM's Financial Manager, Matthew Steven, has prepared a draft memo to the CFO, Hannah Jordan, advising her on how the company should account for certain aspects of the acquisition. Mr. Steven would like you to review the following draft memo and make any necessary revisions to the underlined sections to comply with generally accepted accounting principles.

To: Hannah Jordan, CFO

From: Matthew Steven, Financial Manager

Re: Accounting of Acquisition of NextGen

(a) The fair value of the consideration that MCM transferred to acquire its interest in NextGen is $900,000.

(b) We must expense the $190,000 payment to Jacob, Sullivan, & Duke.

(c) On its acquisition-date consolidated balance sheet, MCM will report a noncontrolling interest of $900,000 in NextGen.

(d) On the date of MCM’s acquisition of a 90% interest in NextGen, MCM will recognize goodwill of $500,000 on the acquisition.

Select how you’d revise the memo below for the above four statements.

Statement (a): A. Keep the original text and use $9,000,000.

B. Change the amount to $8,000,000.

C. Change the amount to $10,000,000.

D. Change the amount to $9,500,000.

E. Change the amount to $8,500,000.

F. Delete this statement because it is irrelevant.

Statement (b): A. Keep the original text.

B. “capitalize the $190,000 payment.”

C. “expense $150,000 of the payment.”

D. “expense $135,000 of the payment.”

E. “expense $40,000 of the payment.”

F. Delete this statement because it is irrelevant.

Statement (c): A. Keep the original text.

B. “not report a noncontrolling interest in NextGen.”

C. “report a noncontrolling interest of $433,000 in NextGen.”

D. “report a noncontrolling interest of $1,000,000 in NextGen.”

E. “report a noncontrolling interest of $962,500 in NextGen.”

F. Delete this statement because it is irrelevant.

Statement (d): A. Keep the original text.

B. “recognize goodwill of $5,670,000 on the acquisition.”

C. “recognize goodwill of $1,000,000 on the acquisition.”

D. “recognize goodwill of $5,170,000 on the acquisition.”

E. “not recognize any goodwill on the acquisition.”

F. Delete this statement because it is irrelevant.