Consolidation subsequent to date of acquisition- Equity method with noncontrolling interest, AAP, and upstream intercompany inventory sale Assume that, on January 1, 2007, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $550,000 over the book value of the subsidiarys Stockholders Equity on the acquisition date. the parent assigned the excess to the following [A] assets:

[A] Asset	Initial Fair Value	Useful Life (years)
Patent	$300,000	10
Goodwill	250,000	Indefinite
	$550,000

80% 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 2012 and 2013:

	2012	2013
Transfer price for inventory sale	$671,000	$733,000
Cost of goods sold	(615,000)	(653,000)
Gross profit	$56,000	$80,000
% inventory remaining	25%	35%
Gross profit deferred	$14,000	$28,000
EOY receivable/payable	$90,000	$100,000

The inventory not remaining at the end of the year has been sold outside of the controlled group.The parent and the subsidiary report the following financial statements at December 31, 2013:

	Parent	Subsidiary			Parent	Subsidiary
Income statement:				Balance sheet:
Sales	$6,770,000	$2,518,500		Assets
Cost of goods sold	(4,739,000)	(1,511,100)		Cash	$795,240	$696,785
Gross profit	2,031,000	1,007,400		Accounts receivable	866,560	584,292
Equity income	246,872			Inventory	1,313,380	750,513
Operating expenses	(1,242,600)	(654,810)		Equity investment	1,846,665
Net income	$1,035,272	352,590		Property, plant and equipment (PPE), net	6,317,764	1,388,533
					$11,139,609	$3,420,123
Statement of retained earnings:
BOY retained earnings	$3,401,248	$1,301,225		Liabilities and stockholders equity
Net income	1,035,272	352,590		Current liabilities	$972,849	$584,292
Dividends	(199,210)	(35,259)		Long-term liabilities	4,000,000	839,500
EOY retained earnings	$4,237,310	$1,618,556		Common stock	1,106,895	167,900
				APIC	822,555	209,875
				Retained earnings	4,237,310	1,618,556
					$11,139,609	$3,420,123

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

• Round your answers to the nearest whole number.
• Use a negative sign with your answer to indicate a reduction to net income.

Consolidated:
Parent's stand-alone net income		Answer
Subsidiary's stand-alone net income		Answer
Plus:	Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits	Answer
Less:	Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits	Answer
	100% AAP amortization	Answer
Subsidiary's adjusted stand-alone net income		Answer
Consolidated net income		Answer
Parent:
Parent's stand-alone net income		Answer
80% Subsidiary's stand-alone net income		Answer
Plus:	Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits	Answer
Less:	Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits	Answer
	80% AAP amortization	Answer
80% of subsidiary's stand-alone net income		Answer
Consolidated net income attributable to the parent		Answer
Subsidiary:
20% of subsidiary's stand-alone net income		Answer
Plus:	Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits	Answer
Less:	Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits	Answer
	20% AAP amortization	Answer
		Answer

g. Complete the consolidating entries according to the C-E-A-D-I sequence.

Round answers to the nearest whole number.

Consolidation Worksheet
Description		Debit	Credit
[C]	Equity income	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	Dividends	Answer	Answer
	Equity investment	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	Equity investment	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[A]	Patent	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	Equity investment	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[D]	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[Icogs]	Equity investment	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[Isales]	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[Icogs]	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
[Ipay]	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer
	AnswerAccounts receivableInventoryAccounts payableEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsPatentGoodwillSalesCost of goods soldOperating expenses	Answer	Answer