Consolidation subsequent to date of acquisitionEquity 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 $445,000 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	Original Amount	Original Useful Life
Property, plant, and equipment	$ 140,000	10 years
Customer list	95,000	5 years
Goodwill	210,000	Indefinite
	$ 445,000

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	1,500,000	Assets
Cost of goods sold	(4,000,000)	(960,000)	Cash	$ 400,000	$ 60,000
Gross profit	1,760,000	540,000	Accounts receivable	752,000	200,000
Equity income	96,300		Inventory	960,000	440,000
Operating expenses	(1,120,000)	(400,000)	Equity investment	882,000
Net income	736,300	140,000	Property, plant and equipment, net	2,240,000	720,000
Statement of retained earnings:				$ 5,234,000	$ 1,420,000
Beginning retained earnings:	1,377,700	400,000	Liabilities and stockholders' equity
Net income	736,300	140,000	Accrued liabilities	800,000	320,000
Dividends	(160,000)	(40,000)	Long-term liabilities	1,600,000	400,000
Ending retained earnings	$1,954,000	$ 500,000	Common stock	160,000	80,000
			APIC	720,000	120,000
			Retained earnings	1,954,000	500,000
				$ 5,234,000	$1,420,000

a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP.

100% AAP	Unamort AAP 01/15/15	2015 Amort	Unamort AAP 12/31/15	2016 Amort	Unamort AAP 12/31/16	2017 Amort	Unamort AAP 12/31/17	2018 Amort	Unamort AAP 12/31/18	2019 Amort	Unamort AAP 12/31/19
PPE, net	$ 140,000	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Customer list	95,000	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	210,000	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	$445,000	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Parent (p%):
PPE, net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Customer list	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Subsidiary (nci%):
PPE, net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Customer list	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer

b. Calculate and organize the profits and losses on intercompany transactions and balances.

(No intercompany transactions)

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	Answer
Unamortized p% AAP	Answer
	Answer

Equity investment account at 12/31/19
p% book value of subsidiary's net assets	Answer
Unamortized p% AAP	Answer
	Answer

d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation.

Equity Investment
	Answer	Answer
	Answer	Answer
	Answer	Answer

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	Answer
Unamortized nci% AAP	Answer
	Answer

Noncontrolling interests at 12/31/19
nci% book value of subsidiary's net assets	Answer
Unamortized nci% AAP	Answer
	Answer

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	Answer
Subsidiary's stand-alone net income	Answer
100% AAP amortization	Answer
Consolidated net income	Answer
Parent's stand-alone net income	Answer
p% of subsidiary's stand-alone net income	Answer
p% AAP amortization	Answer
Consolidated net income attributable to the controlling interest	Answer
nci% of subsidiary's stand-alone net income	Answer
nci% AAP amortization	Answer
Consolidated net income attributable to the noncontrolling interest	Answer

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		Dr	Cr		Consolidated
Income Statement:
Sales	$5,760,000	$1,500,000					Answer
Cost of Goods sold	(4,000,000)	(960,000)					Answer
Gross profit	1,760,000	540,000					Answer
Income (loss) from subsidiary	96,300		[C]	Answer			Answer
Operating expenses	(1,120,000)	(400,000)	[D]	Answer			Answer
Net Income	$736,300	$140,000					Answer
Consolidated NI atrib to NCI			[C]	Answer			Answer
Consolidated NI attrib to CI							Answer
Statement of Ret Earnings:
BOY retained earnings	$1,377,700	$400,000	[E]	Answer			Answer
Net income	736,300	140,000					Answer
Dividends	(160,000)	(40,000)			Answer	[C]	Answer
EOY retained earnings	$1,954,000	$500,000					Answer
Balance Sheet:
Cash	$400,000	$60,000					Answer
Accounts receivable	752,000	200,000					Answer
Inventory	960,000	440,000					Answer
Equity investment	882,000				Answer	[C]	Answer
					Answer	[E]
					Answer	[A]
PPE, net	2,240,000	720,000	[A]	Answer	Answer	[D]	Answer
Customer List			[A]	Answer	Answer	[D]	Answer
Goodwill			[A]	Answer			Answer
	$5,234,000	$1,420,000					Answer
Current liabilities	$800,000	$320,000					Answer
Long-term liabilities	1,600,000	400,000					Answer
Common stock	160,000	80,000	[E]	Answer			Answer
APIC	720,000	120,000	[E]	Answer			Answer
Retained earnings	1,954,000	500,000					Answer
Noncontrolling interest					Answer	[C]	Answer
					Answer	[E]
					Answer	[A]
	$5,234,000	$1,420,000		Answer	Answer		Answer