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: 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 $ 400,000 $ 90,000 Gross profit 1,760,000 570,000 Accounts receivable 752,000 200,000 Equity income 119,700 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 936,000 Net income 759,700 170,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,288,000 $1,450,000 Beginning retained earnings: 1,408,300 400,000 Liabilities and stockholders' equity Net income 759,700 170,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 400,000 Ending retained earnings $2,008,000 $530,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 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 12/31/17 119,000 40,000 225,000 384,000 $ $ Unamort AAP 12/31/18 102,000 20,000 225,000 347,000 2018 Amort 17,000 20,000 0 37,000 $ 2019 Amort 17,000 20,000 0 37,000 Unamort 12/31/19 $ 85,000 0 225,000 $ 310,000 $ $ $ $ $ $ $ $ $ Unamort Unamort Unamort 2015 AAP 2016 2017 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort PPE, net $ 170,000 $ 17,000 $ 153,000 $ 17,000 $ 136,000 $ 17,000 Customer list 100,000 20,000 80,000 20,000 60,000 20,000 ~ Goodwill 225,000 0 225,000 0 225,000 o $495,000 $ 37,000 $ 458,000 $ 37,000 $ 421,000 $ 37,000 Parent (p%): PPE, net $ 153,000 $ 15,300 $ 137,700 $ 15,300 $ 122,400 $ 15,300 Customer list 90,000 18,000 72,000 18,000 54,000 18,000 Goodwill 202,500 0 202,500 0 202,500 0 $ 445,500 $ 33,300 $ 412,200 $ 33,300 $ 378,900 $ 33,300 Subsidiary (nci%): PPE, net $ 17,000 $ 1,700 $ 15,300 $ 1,700 $ 13,600 $ 1,700 Customer list 10,000 2,000 8,000 2,000 6,000 2,000 Goodwill 22.5000 0 2500 22,500 0 0 22,500 0 $ 49,500 $ 3,700 $ 45,800 $ 3,700 $ 42,100 $ 3,700 b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions) SESESSES 107,100 36,000 202,500 345,600 15,300 18,000 0 33,300 91,800 18,000 202,500 312,300 15,300 18,000 0 33,300 76,500 0 202,500 279,000 $ $ $ $ $ $ $ $ $ $ 1,700 2,000 11,900 4,000 22,500 38,400 10,200 2,000 22,500 34,700 1,700 2,000 0 3,700 8,500 0 22,500 31,000 0 $ $ 3,700 $ $ $ 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 $ 540,000 Unamortized p% AAP 0 x OX Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ 657,000 Unamortized p% AAP 0x 0 x d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. OX Equity Investment 0 x Ox 0x Ox 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 $ 0 x Unamortized nci% AAP 0 X OX Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 x 0x Ox OX 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 $ 0x Subsidiary's stand-alone net income 0x 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 0 x nci% of subsidiary's stand-alone net income OX nci% AAP amortization Ox Consolidated net income attributable to the noncontrolling interest $ 0x x x x OX 0x 0x * 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 ar Consolidated Income Statement: Sales $5,760,000 $1,530,000 OX Cost of Goods sold (4,000,000) (960,000) Gross profit 1,760,000 570,000 OX Income (loss) from subsidiary 119,700 0 Operating expenses (1,120,000) (400,000) [D] OX Net Income $759,700 $170,000 0 x Consolidated Nl atrib to NCI Consolidated NI attrib to CI Statement of Ret Earnings: BOY retained earnings $1,408,300 $400,000 [E] Net income 759,700 170,000 0 x Dividends (160,000) (40,000) 0 x [C] OX EOY retained earnings $2,008,000 $530,000 Ox Balance Sheet: Cash $400,000 $90,000 0 x Accounts receivable 752,000 200,000 0x Inventory 960,000 440,000 0* Equity investment 936,000 0 x [C] 0 0x [E] 0 X [A] PPE, net 2,240,000 720,000 [A] 0x 0X [D] Customer list 0 Ox 0x TAL UAN 2,240,000 0 x PPE, net Customer List Goodwill 720,000 [A] [A] 0 * [D] 0X [D] 0 x 07 0 x 0x $5,288,000 $1,450,000 OX Ox 0X Current liabilities Long-term liabilities Common stock APIC Retained earnings Noncontrolling interest $800,000 1,600,000 160,000 720,000 2,008,000 $320,000 400,000 80,000 [E] 120,000 [E] 530,000 0 x OX 0x OX 0 x [C] 0X [E] 0X [A] OX $5,288,000 $1,450,000 0x 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: 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 $ 400,000 $ 90,000 Gross profit 1,760,000 570,000 Accounts receivable 752,000 200,000 Equity income 119,700 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 936,000 Net income 759,700 170,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,288,000 $1,450,000 Beginning retained earnings: 1,408,300 400,000 Liabilities and stockholders' equity Net income 759,700 170,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 400,000 Ending retained earnings $2,008,000 $530,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 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 12/31/17 119,000 40,000 225,000 384,000 $ $ Unamort AAP 12/31/18 102,000 20,000 225,000 347,000 2018 Amort 17,000 20,000 0 37,000 $ 2019 Amort 17,000 20,000 0 37,000 Unamort 12/31/19 $ 85,000 0 225,000 $ 310,000 $ $ $ $ $ $ $ $ $ Unamort Unamort Unamort 2015 AAP 2016 2017 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort PPE, net $ 170,000 $ 17,000 $ 153,000 $ 17,000 $ 136,000 $ 17,000 Customer list 100,000 20,000 80,000 20,000 60,000 20,000 ~ Goodwill 225,000 0 225,000 0 225,000 o $495,000 $ 37,000 $ 458,000 $ 37,000 $ 421,000 $ 37,000 Parent (p%): PPE, net $ 153,000 $ 15,300 $ 137,700 $ 15,300 $ 122,400 $ 15,300 Customer list 90,000 18,000 72,000 18,000 54,000 18,000 Goodwill 202,500 0 202,500 0 202,500 0 $ 445,500 $ 33,300 $ 412,200 $ 33,300 $ 378,900 $ 33,300 Subsidiary (nci%): PPE, net $ 17,000 $ 1,700 $ 15,300 $ 1,700 $ 13,600 $ 1,700 Customer list 10,000 2,000 8,000 2,000 6,000 2,000 Goodwill 22.5000 0 2500 22,500 0 0 22,500 0 $ 49,500 $ 3,700 $ 45,800 $ 3,700 $ 42,100 $ 3,700 b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions) SESESSES 107,100 36,000 202,500 345,600 15,300 18,000 0 33,300 91,800 18,000 202,500 312,300 15,300 18,000 0 33,300 76,500 0 202,500 279,000 $ $ $ $ $ $ $ $ $ $ 1,700 2,000 11,900 4,000 22,500 38,400 10,200 2,000 22,500 34,700 1,700 2,000 0 3,700 8,500 0 22,500 31,000 0 $ $ 3,700 $ $ $ 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 $ 540,000 Unamortized p% AAP 0 x OX Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ 657,000 Unamortized p% AAP 0x 0 x d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. OX Equity Investment 0 x Ox 0x Ox 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 $ 0 x Unamortized nci% AAP 0 X OX Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 x 0x Ox OX 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 $ 0x Subsidiary's stand-alone net income 0x 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 0 x nci% of subsidiary's stand-alone net income OX nci% AAP amortization Ox Consolidated net income attributable to the noncontrolling interest $ 0x x x x OX 0x 0x * 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 ar Consolidated Income Statement: Sales $5,760,000 $1,530,000 OX Cost of Goods sold (4,000,000) (960,000) Gross profit 1,760,000 570,000 OX Income (loss) from subsidiary 119,700 0 Operating expenses (1,120,000) (400,000) [D] OX Net Income $759,700 $170,000 0 x Consolidated Nl atrib to NCI Consolidated NI attrib to CI Statement of Ret Earnings: BOY retained earnings $1,408,300 $400,000 [E] Net income 759,700 170,000 0 x Dividends (160,000) (40,000) 0 x [C] OX EOY retained earnings $2,008,000 $530,000 Ox Balance Sheet: Cash $400,000 $90,000 0 x Accounts receivable 752,000 200,000 0x Inventory 960,000 440,000 0* Equity investment 936,000 0 x [C] 0 0x [E] 0 X [A] PPE, net 2,240,000 720,000 [A] 0x 0X [D] Customer list 0 Ox 0x TAL UAN 2,240,000 0 x PPE, net Customer List Goodwill 720,000 [A] [A] 0 * [D] 0X [D] 0 x 07 0 x 0x $5,288,000 $1,450,000 OX Ox 0X Current liabilities Long-term liabilities Common stock APIC Retained earnings Noncontrolling interest $800,000 1,600,000 160,000 720,000 2,008,000 $320,000 400,000 80,000 [E] 120,000 [E] 530,000 0 x OX 0x OX 0 x [C] 0X [E] 0X [A] OX $5,288,000 $1,450,000 0x