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) Initial Useful [A] Asset Fair Value Life (years) Property, plant and equipment (PPE), net $80,000 10 Customer 170,000 Goodwill 250,000 Indefinite $500,000 list 10 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 $1,875,500 Assets Cost of goods sold (5,131,000) (1,122,300) Cash $415,313 $136,511 Gross Accounts profit 2,199,000 753,200 receivable 938,240 433,956 Income (loss) from subsidiary 193,496 Inventory 1,422,020 557,409 Operating Equity expenses (1,392,700) (486,330) investment 1,479,671 Property plant and Net equipment income $999,796 266,870 (PPE), net 5,374,356 1,280,669 $9,629,600 $2,408,545 $1,053,321 $433,956 Statement of retained earnings: Liabilities BOY and retained stockholders' earnings $3,682,592 $966,425 equity Net Current income 999,796 266,870 liabilities Long-term Dividends (199,159) (39,281) liabilities EOY retained Common earnings $4,483,229 $1,194,014 stock APIC Retained earnings 2,000,000 500,000 1,198,455 894,595 124,700 155,875 4,483,229 1,194,014 $9,629,600 $2,408,545 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Jan. 1, 2013 Intercompany transaction Dec. 31, 2013 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 99760 Retained earnings Unamortized AAP 124700 773140 320000 1317600 A 99760 Equity investment at 12/31/13: Common stock APIC Retained earnings Unamortized AAP 124700 955211 300000 147967 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 1317600 Balance at 1/1/13 Dividends Balance at 12/31/13 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 APIC Retained earnings Noncontrolling interest at 12/31/13: Common stock APIC Retained earnings 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: Parent's stand-alone net income Subsidiary's stand-alone net income Less: Subsidiary's adjusted stand-alone net income Consolidated net income Parent: Parent's stand-alone net income Subsidiary's stand-alone net income Less: 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: g. Complete the consolidating entries according to the C-E-A-D-I sequence. Consolidation Worksheet Description Debit [C] Equity income Credit Dividends Equity investment [E] Common stock APIC Equity investment [A] Property, plant and equipment (PPE), net Customer list Equity investment [D] Customer list 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) Initial Useful [A] Asset Fair Value Life (years) Property, plant and equipment (PPE), net $80,000 10 Customer 170,000 Goodwill 250,000 Indefinite $500,000 list 10 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 $1,875,500 Assets Cost of goods sold (5,131,000) (1,122,300) Cash $415,313 $136,511 Gross Accounts profit 2,199,000 753,200 receivable 938,240 433,956 Income (loss) from subsidiary 193,496 Inventory 1,422,020 557,409 Operating Equity expenses (1,392,700) (486,330) investment 1,479,671 Property plant and Net equipment income $999,796 266,870 (PPE), net 5,374,356 1,280,669 $9,629,600 $2,408,545 $1,053,321 $433,956 Statement of retained earnings: Liabilities BOY and retained stockholders' earnings $3,682,592 $966,425 equity Net Current income 999,796 266,870 liabilities Long-term Dividends (199,159) (39,281) liabilities EOY retained Common earnings $4,483,229 $1,194,014 stock APIC Retained earnings 2,000,000 500,000 1,198,455 894,595 124,700 155,875 4,483,229 1,194,014 $9,629,600 $2,408,545 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Jan. 1, 2013 Intercompany transaction Dec. 31, 2013 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 99760 Retained earnings Unamortized AAP 124700 773140 320000 1317600 A 99760 Equity investment at 12/31/13: Common stock APIC Retained earnings Unamortized AAP 124700 955211 300000 147967 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 1317600 Balance at 1/1/13 Dividends Balance at 12/31/13 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 APIC Retained earnings Noncontrolling interest at 12/31/13: Common stock APIC Retained earnings 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: Parent's stand-alone net income Subsidiary's stand-alone net income Less: Subsidiary's adjusted stand-alone net income Consolidated net income Parent: Parent's stand-alone net income Subsidiary's stand-alone net income Less: 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: g. Complete the consolidating entries according to the C-E-A-D-I sequence. Consolidation Worksheet Description Debit [C] Equity income Credit Dividends Equity investment [E] Common stock APIC Equity investment [A] Property, plant and equipment (PPE), net Customer list Equity investment [D] Customer list