Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest , AAP and gain on upstream intercompany equipment sale

A parent company acquired its 75% interest in its subsidiary on January 1, 2011. On the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $350,000 in excess of the book value of the subsidiarys Stockholders Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiarys financial statements (i.e., there is no Goodwill). The Royalty Agreement has a 7 year estimated remaining economic life on the acquisition date. Both companies use straight line depreciation and amortization, with no salvage value.

In January 2014, the subsidiary sold Equipment to the parent for a cash price of $250,000. The subsidiary acquired the equipment at a cost of $480,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The subsidiary had depreciated the equipment for 6 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 4 year useful life.

Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2016. The parent uses the equity method to account for its Equity Investment.

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

Do no enter any negative answers in part a.

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

Use negative signs with answers that are reductions.

c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders equity of the subsidiary.

Use negative signs with answers that are reductions.

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.

Use negative signs with answers that are reductions.

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

Use negative signs with answers that are reductions.

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

PLEASE HELP!

Parent Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income $3,400,000 (2,400,000) 1,000,000 85,875 (522,000) $563,875 Subsidiary Balance sheet: $900,000 Assets (500,000) Cash 400,000 Accounts receivable Inventory (225,000) PPE, net 150,000 Equity investment $619,500 $250,000 530,000 420,000 900,000 550,000 3,500,000 1,000,000 454,125 $6,003,625 $2,220,000 Statement of retained earnings: BOY retained earnings $1,799,750 Net income 563,875 Dividends EOY retained earnings (100,000) $2,263,625 $200,000 Liabilities and stockholders' equity 150,000 Accounts payable Other current liabilities (30,000) Long-term liabilities $320,000 Common stock APIC Retained earnings $340,000 $250,000 400,000 300,000 1,500,000 1,100,000 200,000 100,000 1,300,000 150,000 2,263,625 320,000 $6,003,625 $2,220,000 2011 Amortization Unamortized 1/1/2012 0 2012 Amortization Unamortized 1/1/2013 0 2013 Amortization 0 Unamortized 1/1/2014 0 2014 Amortization 0 Unamortized 1/1/2015 0 2015 Amortization Unamortized 1/1/2016 2016 Amortization 0 0 0 0 Unamortized 1/1/2011 Royalty agreement 0 Controlling interest: Royalty agreement 0 Noncontrolling interest: Royalty agreement 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Downstream Upstream 0 0 Less: 0 0 0 0 Equity investment at 1/1/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 0 Equity investment at 12/31/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 Equity Investment 0 0 Balance at 1/1/16 Net income 0 0 Dividends 0 0 Balance at 12/31/16 0 0 0 Noncontrolling interest at 1/1/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 0 Noncontrolling interest at 12/31/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 Consolidation Worksheet Description Debit Credit [C] Equity income 0 0 0 0 0 0 Dividends Equity investment 0 0 0 0 [E] 0 0 Common stock APIC 0 0 0 0 Equity investment 0 0 0 0 [A] 0 0 Equity investment 0 0 0 0 [D] Operating expenses 0 0 0 0 [lgain) Equity investment 0 0 0 0 0 0 [ldep] 0 0 0 0 Parent Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income $3,400,000 (2,400,000) 1,000,000 85,875 (522,000) $563,875 Subsidiary Balance sheet: $900,000 Assets (500,000) Cash 400,000 Accounts receivable Inventory (225,000) PPE, net 150,000 Equity investment $619,500 $250,000 530,000 420,000 900,000 550,000 3,500,000 1,000,000 454,125 $6,003,625 $2,220,000 Statement of retained earnings: BOY retained earnings $1,799,750 Net income 563,875 Dividends EOY retained earnings (100,000) $2,263,625 $200,000 Liabilities and stockholders' equity 150,000 Accounts payable Other current liabilities (30,000) Long-term liabilities $320,000 Common stock APIC Retained earnings $340,000 $250,000 400,000 300,000 1,500,000 1,100,000 200,000 100,000 1,300,000 150,000 2,263,625 320,000 $6,003,625 $2,220,000 2011 Amortization Unamortized 1/1/2012 0 2012 Amortization Unamortized 1/1/2013 0 2013 Amortization 0 Unamortized 1/1/2014 0 2014 Amortization 0 Unamortized 1/1/2015 0 2015 Amortization Unamortized 1/1/2016 2016 Amortization 0 0 0 0 Unamortized 1/1/2011 Royalty agreement 0 Controlling interest: Royalty agreement 0 Noncontrolling interest: Royalty agreement 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Downstream Upstream 0 0 Less: 0 0 0 0 Equity investment at 1/1/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 0 Equity investment at 12/31/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 Equity Investment 0 0 Balance at 1/1/16 Net income 0 0 Dividends 0 0 Balance at 12/31/16 0 0 0 Noncontrolling interest at 1/1/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 0 Noncontrolling interest at 12/31/16: Common stock APIC Retained earnings 0 0 0 Less: 0 0 Consolidation Worksheet Description Debit Credit [C] Equity income 0 0 0 0 0 0 Dividends Equity investment 0 0 0 0 [E] 0 0 Common stock APIC 0 0 0 0 Equity investment 0 0 0 0 [A] 0 0 Equity investment 0 0 0 0 [D] Operating expenses 0 0 0 0 [lgain) Equity investment 0 0 0 0 0 0 [ldep] 0 0 0 0