Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest

and AAP

Assume, on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The total

fair value of the controlling and noncontrolling interests was $780,000 over the book value of the sub-

sidiarys Stockholders Equity on the acquisition date. The parent assigned the excess fair value to the

following

[A] assets:

[A] Asset Initial Fair Value Useful Life

Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . $312,000 20 years

Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,000 10 years

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,000 10 years

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,000 Indefinite

$780,000

80% of the Goodwill is allocated to the parent

The parent and the subsidiary report the following pre-consolidation financial statements Decem-

ber 31, 2019:

Parent Subsidiary Parent Subsidiary

Income statement:

Balance sheet:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 520,000 $ 370,500

Accounts receivable . . . . . . . . . . . . . . . . . . . . 780,000 325,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,170,000 429,000

Equity investment . . . . . . . . . . . . . . . . . . . . . . 1,490,320

Property, plant and equipment, net . . . . . . . . 2,600,000

1,170,000

$6,560,320 $2,294,500

Current liabilities. . . . . . . . . . . . . . . . . . . . . . . $1,170,000 $ 325,000

Long-term liabilities. . . . . . . . . . . . . . . . . . . . . 2,600,000 741,000

Common stock . . . . . . . . . . . . . . . . . . . . . . . . 520,000 91,000

Additional paid-in capital. . . . . . . . . . . . . . . . . 1,040,000 117,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . 1,230,320 1,020,500

$6,560,320 $2,294,500

Sales. . . . . . . . . . . . . . . . . . . . . $10,790,000 $1,560,000

Cost of goods sold . . . . . . . . . . (8,190,000) (780,000)

Gross profit. . . . . . . . . . . . . . . . 2,600,000 780,000

Income (loss) from subsidiary . . 230,880

Operating expenses . . . . . . . . . (2,080,000) (455,000)

Net income . . . . . . . . . . . . . . . . $ 750,880 $ 325,000

Statement of retained earnings:

Beginning retained earnings. . . $ 713,440 $ 760,500

Net income . . . . . . . . . . . . . . . . 750,880 325,000

Dividends . . . . . . . . . . . . . . . . . (234,000)

(65,000)

Ending retained earnings . . . . . $ 1,230,320 $1,020,500

Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP),

the controlling interest AAP and the noncontrolling interest AAP.

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.

d. Reconstruct the activity in the parents pre-consolidation Equity Investment T-account for the

year of consolidation.

e. Independently compute the owners equity attributable to the noncontrolling interest beginning

and ending balances starting with the owners equity of the subsidiary.

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

noncontrolling interest net income.

g. Complete the consolidating entries according to the

C-E-A-D-I sequence and complete the

consolidation worksheet