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

Please do sections B, C, D, E, F, G. Most of the sections are correct with a check mark and the rest with an X is incorrect. Solve the problems for incorrect sections (X)

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.

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

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

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.

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

Round answers to the nearest whole number.

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 subsidiary's Stockholders' Equity on the acquisition date, the parent assigned the excess to the following [A] assets: Initial Useful [A] Asset Fair Value Life (years) Patent $300,000 Goodwill 250,000 Indefinite $550,000 10 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 556,000 $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 Income statement: Sales Cost of goods sold Gross profit Equity income Parent Subsidiary Balance sheet: $6,770,000 $2,518,500 Assets (4,739,000) (1,511,100) Cash 2,031,000 1,007,400 Accounts receivable 246,872 Inventory $795,240 866,560 1,313,380 $696,785 584,292 750,513 G 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 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 in part a. BOY retained earnings $3,401,248 $1,301,225 Liabilities and stockholders' equity Net income 1,035,272 352,590 Current liabilities Dividends (199,210) (35,259) Long-term liabilities EOY retained earnings $4,237,310 $1,618,556 common stock APIC Retained earnings $972,849 $584,292 4,000,000 839,500 1,106,895 167,900 822,555 209,875 4,237,310 1,618,556 $11,139,609 $3,420,123 2012 Amortization 30,000 0 0 30,000 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 in part a. Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized AAP 2007 AAP 2008 AAP 2009 2010 2011 AAP 1/1/2007 Amortization 1/1/2008 Amortization 1/1/2009 Amortization 1/1/2010 Amortization 1/1/2011 Amortization 1/1/2012 Patent 300,000 30,000 270,000 30,000 240,000 30,000 210,000 30,000 180,000 30,000 150,000 Goodwill 250,000 0 250,000 0 250,000 250,000 250,000 0 250,000 550,000 30,000 520,000 30,000 490,000 30,000 460,000 30,000 430,000 30,000 400,000 Controlling Interest: Patent 240,000 24,000 216,000 24,000 192,000 24,000 168,000 24,000 144,000 24,000 120,000 Goodwill 200,000 07 200,000 0 0 200,000 0 200,000 0 200,000 200,000 440,000 24,000 416,000 24,000 392,000 24,000 368,000 24,000 344,000 24,000 320,000 Noncontrolling Interest: Patent 60,000 6,000 54,000 6,000 48,000 6,000 42,000 6,000 36,000 6,000 30,000 Goodwill 50,000 0 50,000 0 50,000 50,000 0 0 50,000 0 50,000 110,000 6,000 104,000 6,000 98,000 6,000 92,000 6,000 86,000 6,000 80,000 24,000 0 0 24,000 6,000 0 0 6,000 BOY retained earnings $3,401,248 $1,301,225 Liabilities and stockholders' equity Net income 1,035,272 352,590 Current liabilities Dividends (199,210) (35,259) Long-term liabilities EOY retained earnings $4,237,310 $1,618,556 Common stock APIC Retained earnings $972,849 $584 292 4,000,000 839,500 1,106,895 167,900 822,555 209,875 4,237,310 1,618,556 $11,139,609 $3,420,123 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 in part a. ortized Unamortized Unamortized Unamortized Unamortized Unamortized 2008 AAP 2009 2010 2011 2012 2013 2008 Amortization 1/1/2009 Amortization 1/1/2010 Amortization 1/1/2011 Amortization 1/1/2012 Amortization 1/1/2013 Amortization 0,000 30,000 240,000 30,000 210,000 30,000 180,000 30,000 150,000 30,000 120,000 30,000 0,000 0 250,000 0 250,000 0 250,000 0 250,000 0 250,000 0 0,000 30,000 490,000 30,000 460.000 30,000 430,000 30,000 400,000 30,000 370,000 30,000 Unamortized AAP 1/1/2014 90,000 250,000 340,000 24,000 6,000 0.000 6,000 24,000 0 24,000 192,000 200,000 392,000 0 168,000 200,000 368,000 24,000 0 24,000 144,000 200,000 344,000 24,000 0 0 24,000 120,000 200,000 320,000 24,000 0 24,000 96,000 200,000 296,000 24,000 0 0 24,000 72,000 200,000 272,000 24,000 6,000 6,000 6,000 6,000 4,000 0,000 4,000 48,000 50,000 0 42,000 50,000 92.000 0 36,000 50,000 86,000 0 6,000 6,000 0 0 30,000 50,000 80,000 6,000 0 6,000 24,000 50,000 74,000 18,000 50,000 68,000 6,000 98,000 6,000 6,000 6,000 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Intercompany profit in inventory on 1/1/13 0 0 116,000 x Intercompany profit in inventory on 12/31/13 0 224,000 X 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. Use a negative sign with your answer to indicate a reduction to net income. Equity investment at 1/1/13: Common stock APIC Retained earnings Unamortized AAP Less: 80% of upstream deferred intercompany profits 134,320 167,900 1,040,980 296,000 (11,600) X 1,627,600 X Equity investment at 12/31/13: Common stock APIC Retained earnings Unamortized AAP Less: 80% of upstream deferred intercompany profits 134,320 167,900 1,296,445 x 272,000 (224,000) X 184,265 X 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 1,627,600 x Balance at 1/1/13 0 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. Equity Investment Balance at 1/1/13 1,627,600 X 0 Net income 238,672 x 28,207 Dividends BOY upstream invento 11,600 X 2,400 * AAP amortization 22,400 EOY upstream invento Balance at 12/31/13 184,265 x 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 your answers to the nearest whole number. Use a negative sign with your answer to indicate a reduction to net income. Noncontrolling interest at 1/1/13: Common stock APIC Retained earnings Unamortized AAP Less: 20% of upstream deferred intercompany profits 33,580 41,975 260,245 74,000 (2,900) X 406,900 x Noncontrolling interest at 12/31/13: Common stock APIC Retained earnings Unamortized AAP Less: 20% of upstream deferred intercompany profits 33,580 41,975 324,111 x 68,000 (5,600) 462,066 x 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. 1,037,272 x 254,590 x 14,500 x (28,000) (30,000) 311,090 x 1,348,362 x Consolidated: Parent's stand-alone net income Subsidiary's stand-alone net income Plus: 100% realized upstream deferred profits . Less: 100% unrealized upstream deferred profits - 100% AAP amortization Subsidiary's adjusted stand-alone net income Consolidated net income Parent: Parent's stand-alone net income 80% Subsidiary's stand-alone net income Plus: 80% realized upstream deferred profits Less: 80% unrealized upstream deferred profits 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 Plus: 20% realized upstream deferred profits Less: 20% unrealized upstream deferred profits 20% AAP amortization 1,037,272 x 283,672 x 11,600 x (22,400) (24,000) 248,872 x 1,286,144 x 70,918 x 2,900 X (5,600) (6,000) 62,218 x g. Complete the consolidating entries according to the C-E-A-D-I sequence. Round answers to the nearest whole number. g. Complete the consolidating entries according to the C-E-A-D-I sequence. Round answers to the nearest whole number. Credit Debit 248,872 x 62,218 x 0 0 0 0 35,259 277,079 X 69,270 x > 0 167,900 0 209,875 0 > 1,301,225 0 0 1,343,200 335,800 0 0 Consolidation Worksheet Description [C] Equity income Consolidated net income attributable to noncontrolling interest Dividends Equity investment Noncontrolling interest [E] Common stock APIC Retained earnings Equity investment Noncontrolling interest [A] Patent Goodwill Equity investment Noncontrolling interest [D] Operating expenses Patent [lcogs] Equity investment Noncontrolling interest Cost of goods sold [lsales] Sales Cost of goods sold [lcogs] Cost of goods sold Inventory [lpay] Accounts payable Accounts receivable 120,000 250,000