Consolidation subsequent to date of acquisition - equity method with noncontrolling interest and AAP

Assume on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interest was $780,000 over the book value of the subsidiary's stockholder's equity on the acquisition date. The parent assigned the excess fair value to the following [A] assets:

[A] Asset Initial Fair Value Useful Life

Patent...................................................... $130,000 10 years

PPE............................................................ $312,000 20 years

Customer list......................................... $78,000 10 years

Goodwill.................................................. $260,000 Indefinite

Total $780,000

80% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following pre-consolidation financial statements December 31, 2019:

Parent Subsidiary

Income statement:

Sales....................................................................................... $10,790,000 $1,560,000

COGS..................................................................................... (8,190,000) (780,000)

Gross profit ..................................................................... $2,600,000 $780,000

Income (loss) from subsidiary .................................. 230,880

Operating expenses....................................................... (2,080,000) (455,000)

Net income............................................................................... $750,880 $325,000

Statement of retained earnings

Beginning retained earnings ........................................... $713,440 $760,500

Net income ................................................................................ 750,880 325,000

Dividends......................................................................................... (234,000) (65,000)

Ending retained earnings ......................................................... $1,230,320 $1,020,500

Balance sheet:

Cash........................................................................................................ $520,000 $370,500

Accounts recieivable....................................................................... 780,000 325,000

Inventory............................................................................................. 1,170,000 429,000

Equity investment ........................................................................... 1,490,320

PPE net................................................................................................. 2,600,000 1,170,000

$6,560,320 $2,294,500

Current liabilities.............................................................................. $1,170,000 $325,000

Long term liabilities..................................................................... $,2600,000 741,000

Common stock............................................................................... 520,000 100,000

Additional paid in capital........................................................... 1,040,000 200,000

Retained earnings......................................................................... 1,230,320 1,020,500

$6,560,320 $2,294,500

NEED HELP WITH A-G

a. Disaggregate and document the activity for the 100% acquisition accounting premium, the controlling interest AAP and the noncontrolling interest 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 parents pre-consolidation equity investment T-account for the year of consolidation

e. Independently compute the owners equity attributable to the noncontrolling interest beginning and ending balances starting with the owners equity of the subsidiary.

f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income.

g. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet.

52. Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest and AAP LO Assume, on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $780,000 over the book value of the sub- X sidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess fair value to the following [A] assets: [A] Asset Initial Fair Value Useful Life Property, plant and equipment . . . . . $312,000 20 years Patent. . . . . . . . . 130,000 10 years Customer list. .. . 78,000 10 years Goodwill . . .. 260,000 Indefinite $780,000 80% of the Goodwill is allocated to the parent.372 Chapter 5 | Consolidated Financial Statements with Less Than 100% Ownership Cambridge Business Publishers The parent and the subsidiary report the following pre-consolidation financial statements Decem- ber 31, 2019: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales. . . $10,790,000 $1,560,000 Cash . . . $ 520,000 $ 370,500 Cost of goods sold . . . . . (8, 190,000 (780,000 Accounts receivable . 780,000 325,000 Gross profit . .. 2,600,000 780,000 Inventory. . . 1,170,000 429,000 Equity investment . . . 1,490,320 Income (loss) from subsidiary .. 230,880 Property, plant and equipment, net. . ... 2,600,000 1,170,000 Operating expenses . . . .. . (2,080,000 (455,000) $6,560,320 $2,294,500 Net income . $ 750,880 $ 325,000 Statement of retained earnings: Beginning retained earnings. . . $ 713,440 $ 760,500 Current liabilities . . . $1,170,000 $ 325,000 Net income 750,880 325,000 Long-term liabilities. . . 2,600,000 741,000 Dividends . .. (234,000) (65,000) Common stock . . . 520,000 91,000 Ending retained earnings .... $ 1,230,320 $1,020,500 Additional paid-in capital. .. 1,040,000 117,000 Retained earnings 1,230,320 1,020,500 $6,560,320 $2,294,500 . Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest 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. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. g. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet