Consolidation subsequent to date of acquisition - Equity method with noncontrolling interest and AAP Assume that, on January 1, 2009, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $500,000 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 (years)

[A] Asset	Initial Fair Value	Useful Life (years)
Property, plant and equipment (PPE), net	$95,000	10
Customer list	155,000	10
Goodwill	250,000	Indefinite
	$500,000

80% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following financial statements at December 31, 2013:

	Parent	Subsidiary			Parent	Subsidiary
Income statement:				Balance sheet:
Sales	$7,330,000	$1,871,500		Assets
Cost of goods sold	(5,131,000)	(1,122,300)		Cash	$412,113	$132,511
Gross profit	2,199,000	749,200		Accounts receivable	938,240	433,956
Income (loss) from subsidiary	190,296			Inventory	1,422,020	557,409
Operating expenses	(1,392,700)	(486,330)		Equity investment	1,476,471
Net income	$996,596	262,870		Property, plant and equipment (PPE), net	5,374,356	1,280,669
					$9,623,200	$2,404,545
Statement of retained earnings:
BOY retained earnings	$3,682,592	$966,425		Liabilities and stockholders' equity
Net income	996,596	262,870		Current liabilities	$1,053,321	$433,956
Dividends	(199,159)	(39,281)		Long-term liabilities	2,000,000	500,000
EOY retained earnings	$4,480,029	$1,190,014		Common stock	1,198,455	124,700
				APIC	891,395	155,875
				Retained earnings	4,480,029	1,190,014
					$9,623,200	$2,404,545

a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP.

Do not enter any answers as negative numbers.

	Unamortized		Unamortized		Unamortized		Unamortized		Unamortized		Unamortized
	AAP	2009	AAP	2010	AAP	2011	AAP	2012	AAP	2013	AAP
	1/1/2009	Amortization	1/1/2010	Amortization	1/1/2011	Amortization	1/1/2012	Amortization	1/1/2013	Amortization	1/1/2014
Property, plant and equipment (PPE), net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
AnswerProperty, plant and equipment (PPE), netCustomer listGoodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Parent:
Property, plant and equipment (PPE), net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
AnswerProperty, plant and equipment (PPE), netCustomer listGoodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Subsidiary:
Property, plant and equipment (PPE), net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
AnswerProperty, plant and equipment (PPE), netCustomer listGoodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer

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

		Downstream	Upstream
Jan. 1, 2013	AnswerNo intercompany transactionsIntercompany transaction	Answer	Answer
Dec. 31, 2013	AnswerNo intercompany transactionsIntercompany transaction	Answer	Answer

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

Round answers to the nearest whole number.

Equity investment at 1/1/13:
Common stock	Answer
APIC	Answer
Retained earnings	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
	Answer
Equity investment at 12/31/13:
Common stock	Answer
APIC	Answer
Retained earnings	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
	Answer

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

Round answers to the nearest whole number.

Equity Investment
Balance at 1/1/13	Answer	Answer
AnswerNet incomeDividendsAAP amortization	Answer	Answer	Dividends
	Answer	Answer	AnswerNet incomeDividendsAAP amortization
Balance at 12/31/13	Answer	Answer

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

Round answers to the nearest whole number.

Noncontrolling interest at 1/1/13:
Common stock	Answer
APIC	Answer
Retained earnings	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
	Answer
Noncontrolling interest at 12/31/13:
Common stock	Answer
APIC	Answer
Retained earnings	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
	Answer

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

Round to nearest whole number. Use negative signs with answers that are deductions.

Consolidated:
Parent's stand-alone net income		Answer
Subsidiary's stand-alone net income		Answer
Less:	Answer100% AAP amortization80% AAP amortization20% AAP amortization	Answer
Subsidiary's adjusted stand-alone net income		Answer
Consolidated net income		Answer
Parent:
Parent's stand-alone net income		Answer
Subsidiary's stand-alone net income		Answer
Less:	Answer100% AAP amortization80% AAP amortization20% 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
Less:	Answer100% AAP amortization80% AAP amortization20% AAP amortization	Answer
		Answer

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

Consolidation Worksheet
Description		Debit	Credit
[C]	Equity income	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Dividends	Answer	Answer
	Equity investment	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Equity investment	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
[A]	Property, plant and equipment (PPE), net	Answer	Answer
	Customer list	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Equity investment	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
[D]	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Customer list	Answer	Answer