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 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)
| [A] Asset | Initial Fair Value | Useful Life (years) |
| Property, plant and equipment (PPE), net | $100,000 | 10 |
| Customer list | 150,000 | 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 | $1,870,500 | | Assets |
| Cost of goods sold | (5,131,000) | (1,122,300) | | Cash | $411,313 | $131,511 |
| Gross profit | 2,199,000 | 748,200 | | Accounts receivable | 938,240 | 433,956 |
| Income (loss) from subsidiary | 189,496 | | | Inventory | 1,422,020 | 557,409 |
| Operating expenses | (1,392,700) | (486,330) | | Equity investment | 1,475,671 | |
| Net income | $995,796 | 261,870 | | Property, plant and equipment (PPE), net | 5,374,356 | 1,280,669 |
| | | | $9,621,600 | $2,403,545 |
| Statement of retained earnings: |
| BOY retained earnings | $3,682,592 | $966,425 | | Liabilities and stockholders equity | | |
| Net income | 995,796 | 261,870 | | Current liabilities | $1,053,321 | $433,956 |
| Dividends | (199,159) | (39,281) | | Long-term liabilities | 2,000,000 | 500,000 |
| EOY retained earnings | $4,479,229 | $1,189,014 | | Common stock | 1,198,455 | 124,700 |
| | | APIC | 890,595 | 155,875 |
| | | Retained earnings | 4,479,229 | 1,189,014 |
| | | | $9,621,600 | $2,403,545 |
Please solve part D, E, F, G
d. Reconstruct the activity in the parents pre-consolidation Equity Investment T-account for the year of consolidation.
Round answers to the nearest whole number.
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.
f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income.
- Round answers to the nearest whole number.
- Use negative signs with answers that reduce net income.
g. Complete the consolidating entries according to the C-E-A-D-I sequence.
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 $500,0 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) Initial Useful [A] Asset Fair Value Life (years) Property, plant and equipment (PPE), net $100,000 10 Customer list 150,000 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 $1,870,500 Assets Cost of goods sold (5,131,000) (1,122,300) Cash $411,313 $131,511 Gross profit 2,199,000 748,200 Accounts receivable 938,240 433,956 Income (loss) from subsidiary 189,496 Inventory 1,422,020 557,409 Operating expenses (1,392,700) (486,330) Equity investment 1,475,671 Net income $995,796 261,870 Property, plant and equipment (PPE), net 5,374,356 1,280,669 $9,621,600 $2,403,545 Statement of retained earnings: BOY retained earnings $3,682,592 $966,425 Liabilities and stockholders' equity Net income 995,796 261,870 Current liabilities $1,053,321 $433,956 Dividends (199,159) (39,281) Long-term liabilities 2.000.000 500,000 EOY retained earnings $4,479,229 $1,189,014 Common stock 1,198,455 124,700 APIC 890,595 155,875 Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent Subsidiary Balance sheet: $7,330,000 $1,870,500 Assets (5,131,000) (1,122,300) Cash 2,199,000 748,200 Accounts receivable 189,496 Inventory (1,392,700) (486,330) Equity investment $995,796 261,870 Property, plant and equipment (PPE), net $411,313 $131,511 938,240 433,956 1,422,020 557,409 1,475,671 5,374,356 1,280,669 $9,621,600 $2,403,545 Statement of retained earnings: BOY retained earnings $3,682,592 $966,425 Liabilities and stockholders' equity Net income 995,796 261,870 Current liabilities Dividends (199,159) (39,281) Long-term liabilities EOY retained earnings $4,479,229 $1,189,014 Common stock APIC Retained earnings $1,053,321 $433,956 2,000,000 500,000 1,198,455 124,700 890,595 155,875 4,479.229 1,189,014 $9,621,600 $2,403,545 $$ a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Note: Do not use negative signs with any of your answers below. Unamortized Unamortized Unamortized Unamortized Unamortized AAP 2009 AAP 2010 2011 AAP 2012 1/1/2009 Amortization 1/1/2010 Amortization 1/1/2011 Amortization 1/1/2012 Amortization 1/1/2013 Property, plant and equipment (PPE), net 100,000 10,000 90,000 10,000 80,000 10,000 70,000 10,000 60,000 Customer list 150,000 15,000 135,000 15,000 120,000 15,000 105,000 15,000 90,000 Goodwill 250.000 0 250,000 O 250,000 0 250,000 0 250,000 500,000 25,000 475,000 25,000 450,000 25,000 425,000 25,000 400,000 Parent: Property, plant and equipment (PPE), net 80,000 8,000 72,000 8,000 64,000 8,000 56,000 8,000 48,000 2013 Amortization 10,000 15,000 0 25.1 8,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Note: Do not use negative signs with any of your answers below. Unamortized Unamortized Unamortized Unamortized Unamortized AAP 2009 2010 2011 AAP 2012 2013 1/1/2009 Amortization 1/1/2010 Amortization 1/1/2011 Amortization 1/1/2012 Amortization 1/1/2013 Amortization nd equipment (PPE), net 100,000 10,000 90,000 10,000 80,000 10,000 70,000 10,000 60,000 10,000 150,000 15,000 135,000 15,000 120,000 15,000 105,000 15,000 90,000 15,000 250,000 0 250.000 07 250,000 0 250,000 0 250,000 500,000 25,000 475,000 25,000 450,000 25,000 425,000 25,000 400,000 25,000 Unamortized 1/1/2014 50,000 75,000 250,000 375,000 nd equipment (PPE), net 8,000 8,000 8,000 12,000 0 8,000 12,000 8,000 12,000 80,000 120,000 200,000 400,000 12,000 72,000 108,000 200,000 380,000 64,000 96,000 200,000 360,000 12,000 0 20.000 56,000 84,000 200,000 340,000 48,000 72,000 200,000 320,000 40,000 60,000 200,000 300,000 0 20,000 20,000 20,000 20,000 nd equipment (PPE), net 2,000 2,000 16,000 2,000 2,000 3,000 20,000 30,000 50,000 100,000 3,000 0 18,000 27,000 50,000 95,000 3,000 0 5,000 24,000 50,000 90,000 14,000 21,000 50,000 2,000 3,000 0 5,000 12,000 18,000 50,000 80,000 3,000 0 5,000 10,000 15,000 50,000 75,000 5,000 5,000 85,000 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Jan. 1, 2013 , No intercompany transactions Dec 31, 2013 No intercompany transactions O b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Jan 1, 2013 No intercompany transactions - Dec 31, 2013 No intercompany transactions 0 0 0 0 0 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 APIC Retained earnings Unamortized AAP 99,760 124,700 773,140 320,000 1,317,600 Equity investment at 12/31/13: Common stock APIC Retained earnings Unamortized AAP 99,760 124,700 951,211 300,000 1,475,671 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 0 x 0 Net income 0 X O X Dividends 0 0 X AAP amortization Balance at 12/31/13 0 X 0 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. Balance at 1/1/13 Equity Investment 0 X OX 0 Net income 0 0 % Dividends O X AAP amortization 0 + Balance at 12/31/13 0 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 OX APIC OX Retained earnings OX Unamortized AAP 0X OX OX Noncontrolling interest at 12/31/13: Common stock APIC Retained earnings Unamortized AAP OX Ox 0 x OX f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Round answers to the nearest whole number. Use negative signs with answers that reduce net income. f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Round answers to the nearest whole number. Use negative signs with answers that reduce net income. Consolidated: 0 x 0 x Parent's stand-alone net income Subsidiary's stand-alone net income Less: 100% AAP amortization Subsidiary's adjusted stand-alone net income Consolidated net income 0 x 0 x 0 x Parent: 0 x 0 x 0 x 0 x Parent's stand-alone net income Subsidiary's stand-alone net income Less: 80% AAP amortization >80% of subsidiary's stand-alone net income Consolidated net income attributable to the parent Subsidiary: 20% of subsidiary's stand-alone net income Less: 20% AAP amortization 0 x 0 x 0 x 0 x g. Complete the consolidating entries according to the C-E-A-D-I sequence. Debit Credit Consolidation Worksheet Description [C] Equity income Consolidated net income attributable to noncontrolling interest Dividends 0 X O 0 x O 0 0 x 0 0 x 0 0 x 0 x 0 O O 0 x 0 x 0 O 0 x 0 0 x Equity investment Noncontrolling interest [E] Common stock APIC Retained earnings Equity investment Noncontrolling interest [A] Property, plant and equipment (PPE), net Customer list Goodwill Equity investment Noncontrolling interest [D] Operating expenses Property, plant and equipment (PPE), net Customer list 0 x 0 O 0 x 0 0 x O > 0 0 x O 0 x - 0 X 0 > 0 x o o o 0 x
