Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest, AAP, and upstream intercompany inventory sale Assume that, on January 1, 2010, a parent company acquired a 75% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $550,000 over the book value of the subsidiarys Stockholders Equity on the acquisition date. The parent assigned the excess to the following [A] assets: [A] Asset Initial Fair Value Useful Life Patent $200,000 10 years Goodwill 350,000 Indefinite $550,000 75% of the Goodwill is allocated to the parent. Assume that the subsidiary sells inventory to the parent (upstream) 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 2015 and 2016: 2015 2016 Transfer price for inventory sale $600,000 $700,000 Cost of goods sold (500,000) (580,000) Gross profit $100,000 $120,000 % Inventory remaining 25% 35% Gross profit deferred $25,000 $42,000 EOY receivable/payable $70,000 $120,000 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 subsidiary report the following pre-consolidation financial statements at December 31, 2016: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales $6,700,000 $2,500,000 Cash $600,000 $400,000 Cost of goods sold (4,500,000) (1,500,000) Accounts receivable 800,000 600,000 Gross profit 2,200,000 1,000,000 Inventory 1,000,000 800,000 Income (loss) from subsidiary 122,250 Equity investment 1,401,000 Operating expenses (2,000,000) (800,000) Property, plant and equipment (PPE), net 3,700,000 1,000,000 Net income $322,250 $200,000 $7,501,000 $2,800,000 Statement of retained earnings: BOY retained earnings $2,000,000 $1,000,000 Current liabilities $878,750 $500,000 Net income 322,250 200,000 Long-term liabilities 3,000,000 800,000 Dividends (200,000) (40,000) Common stock 500,000 140,000 EOY retained earnings $2,122,250 $1,160,000 APIC 1,000,000 200,000 Retained earnings 2,122,250 1,160,000 $7,501,000 $2,800,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. (Complete for the first four years only.) 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.