Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest, AAP, and downstream intercompany inventory sale Assume, on January 1, 2016, a parent company acquired a 70% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $160,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] asset: [A] Asset Initial Fair Value Useful Life Property, plant & equipment. ....... ............. $160,000 10 years This acquisition resulted in no recognized goodwill. Assume the parent sells inventory to the subsidiary (downstream) 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 2018 and 2019: 2018 2019 $200.000 (170,000) $ 30,000 Transfer price for inventory sale... Cost of goods sold. Gross profit... % Inventory remaining .. Gross profit deferred.......... EOY receivable/payable......... $210,000 (150,000) $ 60,000 40% $ 24,000 $ 30,000 30% $ 9,000 $ 20,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the equity method of pre-consolidation investment bookkeeping. The parent and the subsid- iary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary $1,500,000 $1,500,000 $80,000 210,000 340,000 500,000 Balance sheet: Cash........... ..... $ 400,000 Accounts receivable ...... 600,000 Inventory...... 800,000 Equity investment. . . . . . 761,700 Property, plant and equipment, net ....... 2,800,000 $5,361,700 Income statement: Sales....................... ...... $6,400,000 $6,400,000 Cost of goods sold ............ (4,500,000) Gross profit... 1,900,000 Income (loss) from subsidiary 143,800 Operating expenses . . . . . . . . ... (1,600,000) Net income. $ 443,800 Statement of retained earnings: Beginning retained earnings..... $1,237,900 Net income.................. 443,800 Dividends .. (120,000) Ending retained earnings ....... $1,561,700 (300 000) 800,000 $1,430,000 $ 200,000 $ 715,000 200,000 (50,000) Current liabilities. . . . . . . Long-term liabilities....... Common stock Additional paid-in capital. .. Retained earnings $ 500,000 2,000,000 400,000 900,000 1,561,700 $5,361,700 $125,000 300,000 60,000 80,000 865,000 $1,430,000 d. a. 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. Reconstruct the activity in the parent's 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. 8. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest, AAP, and downstream intercompany inventory sale Assume, on January 1, 2016, a parent company acquired a 70% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $160,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] asset: [A] Asset Initial Fair Value Useful Life Property, plant & equipment. ....... ............. $160,000 10 years This acquisition resulted in no recognized goodwill. Assume the parent sells inventory to the subsidiary (downstream) 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 2018 and 2019: 2018 2019 $200.000 (170,000) $ 30,000 Transfer price for inventory sale... Cost of goods sold. Gross profit... % Inventory remaining .. Gross profit deferred.......... EOY receivable/payable......... $210,000 (150,000) $ 60,000 40% $ 24,000 $ 30,000 30% $ 9,000 $ 20,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the equity method of pre-consolidation investment bookkeeping. The parent and the subsid- iary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary $1,500,000 $1,500,000 $80,000 210,000 340,000 500,000 Balance sheet: Cash........... ..... $ 400,000 Accounts receivable ...... 600,000 Inventory...... 800,000 Equity investment. . . . . . 761,700 Property, plant and equipment, net ....... 2,800,000 $5,361,700 Income statement: Sales....................... ...... $6,400,000 $6,400,000 Cost of goods sold ............ (4,500,000) Gross profit... 1,900,000 Income (loss) from subsidiary 143,800 Operating expenses . . . . . . . . ... (1,600,000) Net income. $ 443,800 Statement of retained earnings: Beginning retained earnings..... $1,237,900 Net income.................. 443,800 Dividends .. (120,000) Ending retained earnings ....... $1,561,700 (300 000) 800,000 $1,430,000 $ 200,000 $ 715,000 200,000 (50,000) Current liabilities. . . . . . . Long-term liabilities....... Common stock Additional paid-in capital. .. Retained earnings $ 500,000 2,000,000 400,000 900,000 1,561,700 $5,361,700 $125,000 300,000 60,000 80,000 865,000 $1,430,000 d. a. 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. Reconstruct the activity in the parent's 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. 8. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet