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 $405,000 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] [A] Asset Amount Useful Life Property, plant, and equipment $ 130,000 10 years Customer list 85,000 5 years Goodwill 190,000 Indefinite $ 405,000 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 1,490,000 Assets Cost of goods sold (4,000,000) ( (960,000) Cash $ 400.000 $ 50,000 Gross profit 1,760,000 530,000 Accounts receivable 752,000 200,000 Equity income 90,000 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 850,500 Net income 730,000 130,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,202,500 $ 1,410,000 Beginning retained earnings: 1,352,500 400,000 Liabilities and stockholders' equity Net income 730,000 130,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 400,000 Ending retained earnings $1,922,500 $ 490,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 1,922,500 490,000 $5,202,500 $1,410,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Unamort Unamort Unamort Unamort Unamort Unamort 2015 AAP 2016 AAP 2017 AAP 2018 2019 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort 12/31/17 Amort 12/31/18 Amort 12/31/19 PPE, net $ 130,000 $ 13,000 $ 117,000 $ 13,000 $ 104,000 $ 13,000 $ 91,000 $ 13,000 $ 78,000 $ 13,000 $ 65,000 Customer list 85,000 17,000 68,000 17,000 51,000 17,000 34,000 17,000 17,000 17,000 0 Goodwill 190,000 0 190,000 0 190,000 0 190,000 0 190,000 0 190,000 $405,000 $ 30,000 $ 375,000 $ 30,000 $ 345,000 $ 30,000 $ 315,000 $ 30,000 $ 285,000 $ 30,000 $ 255,000 Parent (p%): PPE, net $ 117,000 $ 11,700 $ 105,300 $ 11,700 $ 93,600 $ 11,700 $ 81,900 $ 11,700 $ 70,200 $ 11,700 $ 58,500 Customer list 76,500 15,300 61,200 15,300 45,900 15,300 30,600 15,300 15,300 15,300 0 Goodwill 171,000 0 171,000 0 171,000 0 171,000 0 171,000 0 171,000 $ 364,500 $ 27,000 $ 337,500 $ 27,000 $ 310,500 $ 27,000 $ 283,500 $ 27,000 $ 256,500 $ 27,000 $ 229,500 Subsidiary (nci%): PPE, net , $ 13,000 $ 1,300 $ 11,700 $ 1,300 $ 10,400 $ 1,300 $ 9,100 $ 1,300 $ 7,800 $ 1,300 $ 6,500 Customer list 8,500 1,700 6,800 1,700 5,100 1,700 3,400 1,700 1,700 1,700 0 Goodwill 19,000 0 19,000 0 19,000 0 19,000 0 19,000 0 19,000 $ 40,500 $ 3,000 $ 37,500 $ 3,000 $ 34,500 $ 3,000 $ 31,500 $ 3,000 $ 28,500 $ 3,000 $ 25,500 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 $ Unamortized p% AAP 0 0 0 Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ Unamortized p% AAP 0 0 0 0 d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment 0 0 0 0 0 0 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 $ Unamortized nci% AAP 0 0 0 Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 0 0 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 $ 0 Subsidiary's stand-alone net income 0 100% AAP amortization 0 Consolidated net income $ 0 Parent's stand-alone net income 0 p% of subsidiary's stand-alone net income 0 p% AAP amortization Consolidated net income attributable to the controlling interest $ 0 nci% of subsidiary's stand-alone net income $ nci% AAP amortization 0 Consolidated net income attributable to the noncontrolling interest $ 0 $ 0 0 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 $1,490,000 $ 0 0 Cost of Goods sold (4,000,000) (960,000) 0 Gross profit 1,760,000 530,000 0 Income (loss) from subsidiary 90,000 [C] 0 0 Operating expenses (1,120,000) (400,000) [D] 0 0 Net Income $730,000 $130,000 0 Consolidated NI atrib to NCI [C] 0 0 Consolidated NI attrib to CI $ 0 Statement of Ret Earnings: BOY retained earnings $1,352,500 $400,000 [E] 0 $ 0 Net income 730,000 130,000 0 Dividends (160,000) (40,000) O [C] 0 EOY retained earnings $1,922,500 $490,000 $ 0 Balance Sheet: Cash $400,000 $50,000 $ 0 Accounts receivable 752,000 200,000 0 Inventory 960,000 440,000 0 Equity investment 850,500 0 [C] 0 0 [E] O [A] ] PPE, net 2,240,000 720,000 [A] 0 0 [D] 0 Customer List [A] 0 0 [D] 0 Goodwill [A] 0 0 $5,202,500 $1,410,000 $ 0 0 0 Current liabilities Long-term liabilities Common stock APIC $800,000 1,600,000 160,000 720,000 1,922,500 $320,000 400,000 80,000 [E] 120,000 [E] 490,000 0 0 0 0 0 Retained earnings Noncontrolling interest ) 0 0 [E] O [A] $5,202,500 $1,410,000 $ 0 $ 0 $ 0 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 $405,000 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] [A] Asset Amount Useful Life Property, plant, and equipment $ 130,000 10 years Customer list 85,000 5 years Goodwill 190,000 Indefinite $ 405,000 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 1,490,000 Assets Cost of goods sold (4,000,000) ( (960,000) Cash $ 400.000 $ 50,000 Gross profit 1,760,000 530,000 Accounts receivable 752,000 200,000 Equity income 90,000 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 850,500 Net income 730,000 130,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,202,500 $ 1,410,000 Beginning retained earnings: 1,352,500 400,000 Liabilities and stockholders' equity Net income 730,000 130,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 400,000 Ending retained earnings $1,922,500 $ 490,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 1,922,500 490,000 $5,202,500 $1,410,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Unamort Unamort Unamort Unamort Unamort Unamort 2015 AAP 2016 AAP 2017 AAP 2018 2019 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort 12/31/17 Amort 12/31/18 Amort 12/31/19 PPE, net $ 130,000 $ 13,000 $ 117,000 $ 13,000 $ 104,000 $ 13,000 $ 91,000 $ 13,000 $ 78,000 $ 13,000 $ 65,000 Customer list 85,000 17,000 68,000 17,000 51,000 17,000 34,000 17,000 17,000 17,000 0 Goodwill 190,000 0 190,000 0 190,000 0 190,000 0 190,000 0 190,000 $405,000 $ 30,000 $ 375,000 $ 30,000 $ 345,000 $ 30,000 $ 315,000 $ 30,000 $ 285,000 $ 30,000 $ 255,000 Parent (p%): PPE, net $ 117,000 $ 11,700 $ 105,300 $ 11,700 $ 93,600 $ 11,700 $ 81,900 $ 11,700 $ 70,200 $ 11,700 $ 58,500 Customer list 76,500 15,300 61,200 15,300 45,900 15,300 30,600 15,300 15,300 15,300 0 Goodwill 171,000 0 171,000 0 171,000 0 171,000 0 171,000 0 171,000 $ 364,500 $ 27,000 $ 337,500 $ 27,000 $ 310,500 $ 27,000 $ 283,500 $ 27,000 $ 256,500 $ 27,000 $ 229,500 Subsidiary (nci%): PPE, net , $ 13,000 $ 1,300 $ 11,700 $ 1,300 $ 10,400 $ 1,300 $ 9,100 $ 1,300 $ 7,800 $ 1,300 $ 6,500 Customer list 8,500 1,700 6,800 1,700 5,100 1,700 3,400 1,700 1,700 1,700 0 Goodwill 19,000 0 19,000 0 19,000 0 19,000 0 19,000 0 19,000 $ 40,500 $ 3,000 $ 37,500 $ 3,000 $ 34,500 $ 3,000 $ 31,500 $ 3,000 $ 28,500 $ 3,000 $ 25,500 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 $ Unamortized p% AAP 0 0 0 Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ Unamortized p% AAP 0 0 0 0 d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment 0 0 0 0 0 0 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 $ Unamortized nci% AAP 0 0 0 Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 0 0 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 $ 0 Subsidiary's stand-alone net income 0 100% AAP amortization 0 Consolidated net income $ 0 Parent's stand-alone net income 0 p% of subsidiary's stand-alone net income 0 p% AAP amortization Consolidated net income attributable to the controlling interest $ 0 nci% of subsidiary's stand-alone net income $ nci% AAP amortization 0 Consolidated net income attributable to the noncontrolling interest $ 0 $ 0 0 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 $1,490,000 $ 0 0 Cost of Goods sold (4,000,000) (960,000) 0 Gross profit 1,760,000 530,000 0 Income (loss) from subsidiary 90,000 [C] 0 0 Operating expenses (1,120,000) (400,000) [D] 0 0 Net Income $730,000 $130,000 0 Consolidated NI atrib to NCI [C] 0 0 Consolidated NI attrib to CI $ 0 Statement of Ret Earnings: BOY retained earnings $1,352,500 $400,000 [E] 0 $ 0 Net income 730,000 130,000 0 Dividends (160,000) (40,000) O [C] 0 EOY retained earnings $1,922,500 $490,000 $ 0 Balance Sheet: Cash $400,000 $50,000 $ 0 Accounts receivable 752,000 200,000 0 Inventory 960,000 440,000 0 Equity investment 850,500 0 [C] 0 0 [E] O [A] ] PPE, net 2,240,000 720,000 [A] 0 0 [D] 0 Customer List [A] 0 0 [D] 0 Goodwill [A] 0 0 $5,202,500 $1,410,000 $ 0 0 0 Current liabilities Long-term liabilities Common stock APIC $800,000 1,600,000 160,000 720,000 1,922,500 $320,000 400,000 80,000 [E] 120,000 [E] 490,000 0 0 0 0 0 Retained earnings Noncontrolling interest ) 0 0 [E] O [A] $5,202,500 $1,410,000 $ 0 $ 0 $ 0