Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest and AAP Assume, on January 1, 2015, a parent company acquired a 90% interest in its subsidiary. The total fair value of the controlling and noncontrolling interest was $495,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: Original Original [A] Asset Amount Useful Life Property, plant, and equipment $ 170,000 10 years Customer list 100,000 5 years Goodwill 225,000 Indefinite $ 495,000 90% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales $5,760,000 1,530,000 Assets Cost of goods sold (4,000,000) (960,000) Cash Gross profit 1,760,000 570,000 Accounts receivable Equity income 119,700 Inventory Operating expenses (1,120,000) (400,000) Equity investment Net income 759,700 170,000 Property, plant and equipment, net Statement of retained earnings: Beginning retained earnings: 1,408,300 400,000 Liabilities and stockholders' equity Net income 759,700 170,000 Accrued liabilities Dividends (160,000) (40,000) Long-term liabilities Ending retained earnings $2,008,000 $530,000 Common stock APIC Retained earnings $ 400,000 752,000 960,000 936,000 2,240,000 $90,000 200,000 440,000 720,000 $ 5,288,000 $1,450,000 800,000 320,000 1,600,000 400,000 160,000 80,000 720,000 120,000 2,008,000 530,000 $ 5,288,000 $1,450,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Unamort Unamort Unamort Unamort Unamort Unamort 2015 AAP 2 016 AAP 2017 AAP 2018 2019 AAP 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort 12/31/17 Amort 12/31/18 Amort 12/31/19 PPE, net $ 170,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Customer list 100,000 0 0 0 0 0 0 0 0 Goodwill 225,000 0 0 0 0 0 0 0 0 $495,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Parent (p%): PPE, net 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Customer list 0 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Subsidiary (nci%): PPE, net $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Customer list 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions) 0 C. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Equity investment account at 1/1/19 p% book value of subsidiary's net assets $ Unamortized p% AAP Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ Unamortized p% AAP d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. Noncontrolling interests at 1/1/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Note:Use a negative sign with your answer to indicate a reduction to net income. $ Parent's stand-alone net income Subsidiary's stand-alone net income 100% AAP amortization Consolidated net income Parent's stand-alone net income p% of subsidiary's stand-alone net income p% AAP amortization Consolidated net income attributable to the controlling interest $ nci% of subsidiary's stand-alone net income nci% AAP amortization Consolidated net income attributable to the noncontrolling interest $ 0 g. Complete the complete the consolidation worksheet. Note: Use negative signs with your answers in the Consolidated column when appropriate (Cost of goods sold, Operating expenses and Dividends). Consolidation Entries Parent Subsidiary Consolidated Income Statement: $5,760,000 $1,530,000 (4,000,000) (960,000) 1,760,000 570,000 119,700 (1,120,000) (400,000) (D) $759,700 $170,000 (C) Sales Cost of Goods sold Gross profit Income (loss) from subsidiary Operating expenses Net Income Consolidated Ni atrib to NCI Consolidated Nl attrib to CI Statement of Ret Earnings: BOY retained earnings Net income Dividends EOY retained earnings $1,408,300 759,700 (160,000) $2,008,000 $400,000 (E) 170,000 (40,000) $530,000 OC Balance Sheet: Cash Accounts receivable $400,000 752,000 960,000 936,000 $90,000 200,000 440,000 Inventory Equity investment 2,240,000 720,000 (A) PPE, net Customer List Goodwill 0 (A) OD 0 [D] (A) $5,288,000 $1,450,000 Current liabilities Long-term liabilities Common stock APIC $800,000 1,600,000 160,000 720,000 2,008,000 $320,000 400,000 80,000 (E) 120,000 (E) 530,000 Retained earnings Noncontrolling interest 00 0 (E) Accounts receivable Inventory Equity investment 5400,000 752,000 960,000 936,000 590,000 200,000 440,000 OC) O [E) O [A] OD OD] 2,240,000 720,000 (A) PPE, net Customer List Goodwill (A) Current liabilities Long-term liabilities Common stock APIC Retained earnings Noncontrolling interest $5,288,000 $1,450,000 $800,000 $320,000 1,600,000 400,000 160,000 80,000 (E) 720,000 120,000 (E) 0 2,008,000 530,000 OC) OLE) O(A $5,288,000 $1,450,000 5050 Olloooooo Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest and AAP Assume, on January 1, 2015, a parent company acquired a 90% interest in its subsidiary. The total fair value of the controlling and noncontrolling interest was $495,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: Original Original [A] Asset Amount Useful Life Property, plant, and equipment $ 170,000 10 years Customer list 100,000 5 years Goodwill 225,000 Indefinite $ 495,000 90% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales $5,760,000 1,530,000 Assets Cost of goods sold (4,000,000) (960,000) Cash Gross profit 1,760,000 570,000 Accounts receivable Equity income 119,700 Inventory Operating expenses (1,120,000) (400,000) Equity investment Net income 759,700 170,000 Property, plant and equipment, net Statement of retained earnings: Beginning retained earnings: 1,408,300 400,000 Liabilities and stockholders' equity Net income 759,700 170,000 Accrued liabilities Dividends (160,000) (40,000) Long-term liabilities Ending retained earnings $2,008,000 $530,000 Common stock APIC Retained earnings $ 400,000 752,000 960,000 936,000 2,240,000 $90,000 200,000 440,000 720,000 $ 5,288,000 $1,450,000 800,000 320,000 1,600,000 400,000 160,000 80,000 720,000 120,000 2,008,000 530,000 $ 5,288,000 $1,450,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Unamort Unamort Unamort Unamort Unamort Unamort 2015 AAP 2 016 AAP 2017 AAP 2018 2019 AAP 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort 12/31/17 Amort 12/31/18 Amort 12/31/19 PPE, net $ 170,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Customer list 100,000 0 0 0 0 0 0 0 0 Goodwill 225,000 0 0 0 0 0 0 0 0 $495,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Parent (p%): PPE, net 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Customer list 0 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Subsidiary (nci%): PPE, net $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Customer list 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions) 0 C. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Equity investment account at 1/1/19 p% book value of subsidiary's net assets $ Unamortized p% AAP Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ Unamortized p% AAP d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. Noncontrolling interests at 1/1/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Note:Use a negative sign with your answer to indicate a reduction to net income. $ Parent's stand-alone net income Subsidiary's stand-alone net income 100% AAP amortization Consolidated net income Parent's stand-alone net income p% of subsidiary's stand-alone net income p% AAP amortization Consolidated net income attributable to the controlling interest $ nci% of subsidiary's stand-alone net income nci% AAP amortization Consolidated net income attributable to the noncontrolling interest $ 0 g. Complete the complete the consolidation worksheet. Note: Use negative signs with your answers in the Consolidated column when appropriate (Cost of goods sold, Operating expenses and Dividends). Consolidation Entries Parent Subsidiary Consolidated Income Statement: $5,760,000 $1,530,000 (4,000,000) (960,000) 1,760,000 570,000 119,700 (1,120,000) (400,000) (D) $759,700 $170,000 (C) Sales Cost of Goods sold Gross profit Income (loss) from subsidiary Operating expenses Net Income Consolidated Ni atrib to NCI Consolidated Nl attrib to CI Statement of Ret Earnings: BOY retained earnings Net income Dividends EOY retained earnings $1,408,300 759,700 (160,000) $2,008,000 $400,000 (E) 170,000 (40,000) $530,000 OC Balance Sheet: Cash Accounts receivable $400,000 752,000 960,000 936,000 $90,000 200,000 440,000 Inventory Equity investment 2,240,000 720,000 (A) PPE, net Customer List Goodwill 0 (A) OD 0 [D] (A) $5,288,000 $1,450,000 Current liabilities Long-term liabilities Common stock APIC $800,000 1,600,000 160,000 720,000 2,008,000 $320,000 400,000 80,000 (E) 120,000 (E) 530,000 Retained earnings Noncontrolling interest 00 0 (E) Accounts receivable Inventory Equity investment 5400,000 752,000 960,000 936,000 590,000 200,000 440,000 OC) O [E) O [A] OD OD] 2,240,000 720,000 (A) PPE, net Customer List Goodwill (A) Current liabilities Long-term liabilities Common stock APIC Retained earnings Noncontrolling interest $5,288,000 $1,450,000 $800,000 $320,000 1,600,000 400,000 160,000 80,000 (E) 720,000 120,000 (E) 0 2,008,000 530,000 OC) OLE) O(A $5,288,000 $1,450,000 5050 Olloooooo