Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest, AAP, and upstream intercompany inventory sale Assume, on January 1, 2013, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $480,000 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 Initial Fair Value Useful Life Patent $180,000 10 years Goodwill 300,000 Indelinite $430,000 2018 80% of the Goodwill is allocated to the parent. Assume 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 2018 and 2019: 2019 Transfer price for inventory sale $500,000 $600,000 Cost of goods sold (420,000) (450,000) Gross profit $80,000 $150,000 % Inventory remaining 35% 25% Gross profit deferred $28,000 $37.500 COY receivable/payable $80,000 $140,000 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, 2019: Parent Subsidiary $500,000 700,000 900,000 1,373 200 $400,000 600,000 800,000 Parent Subsidiary Income statement: Balance sheet: Sales $6,700,000 $2,500,000 Cash Cost of goods sold (4,500,000) (1,500,000) Accounts receivable Gross profit 2,200,000 1,000,000 Inventory Income (loss) from subsidiary 138,000 Equity investment Operating expenses (2,000,000) (800,000) Property, plant and equipment (PPC), nel Nel income $33,000 $200,000 Statement of retained earnings: BOY retained earnings $2,035 200 $940,000 Current liabilities Net income 338,000 200,000 Long term liabilities Dividends (200,000) (40,000) Common stock COY retained earnings $2,173 200 $1,100,000 APIC Retained earnings 4,000,000 1,000,000 $7,473,200 $2,800,000 $800,000 $500,000 3,000,000 900.000 500,000 100,000 1,000,000 200,000 2,173,200 1.100.000 $7,473,200 $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.) Unamortized Unamortized Unamortized Unamortized AAP 2013 AAP 2014 AAP 2015 2016 1/1/2013 Amortization 12/31/2013 Amortization 12/31/2014 Amortization 12/31/2015 Amortization AAP 1009 Palent 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 8046 Patent 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20% Patent 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 0 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Intercompany profit on 1/1/19 Intercompany profit on 12/31/19 0 0 0 c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Use a negative sign with your answer to indicate a reduction to net income. Cquity investment at 1/1/19: 80% x book value of the net assets of subsidiary Add: 0 0 Less: 0 0 Cquity investment at 12/31/19: 80% x book value of the net assets of subsidiary Add: 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 Cquity Investment at 1/1/19 Nel income 0 0 Dividends 0 O AAP amortization 0 0 Cquity Investment at 12/31/19 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. Use a negative sign with your answer to indicate a reduction to net income. . 0 0 0 0 0 0 > 0 0 Parent's stand-alone net income Subsidiary's stand-alone net income Plus: Less: Less: 100% AAP amortization Consolidated net income Parent's stand-alone net income 20% Subsidiary's stand-alone net income Plus: Less: Less: 80% AAP amortization Consolidated net income attributable to the controlling interest 20% of subsidiary's stand-alone net income Plus: Less: Less: 20% AAP amortization Consolidated net income attributable to the noncontrolling interest . 0 0 0 0 . 0 0 1 0 3. Complete the consolidating entries according to the C-E-A-D-I sequence. Credit 0 1 0 0 0 0 3. Complete the consolidating entries according to the C-E-A-D-1 sequence. Consolidation Worksheet Description Debit [C] Equity income 0 0 Dividends 0 [quity investment 0 0 Common stock 0 APIC 0 0 [quity investment 0 0 [A1 Patent 0 0 [quity investment 0 0 [C] 0 0 1 0 0 1 0 0 1 0 0 0 0 [] 0 0 0 [lcags Equity investment 0 0 0 0 0 0 [sales 0 0 0 [lcogs 0 0 0 0 [Ipay] 0 0 0 0 Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest, AAP, and upstream intercompany inventory sale Assume, on January 1, 2013, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $480,000 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 Initial Fair Value Useful Life Patent $180,000 10 years Goodwill 300,000 Indelinite $430,000 2018 80% of the Goodwill is allocated to the parent. Assume 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 2018 and 2019: 2019 Transfer price for inventory sale $500,000 $600,000 Cost of goods sold (420,000) (450,000) Gross profit $80,000 $150,000 % Inventory remaining 35% 25% Gross profit deferred $28,000 $37.500 COY receivable/payable $80,000 $140,000 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, 2019: Parent Subsidiary $500,000 700,000 900,000 1,373 200 $400,000 600,000 800,000 Parent Subsidiary Income statement: Balance sheet: Sales $6,700,000 $2,500,000 Cash Cost of goods sold (4,500,000) (1,500,000) Accounts receivable Gross profit 2,200,000 1,000,000 Inventory Income (loss) from subsidiary 138,000 Equity investment Operating expenses (2,000,000) (800,000) Property, plant and equipment (PPC), nel Nel income $33,000 $200,000 Statement of retained earnings: BOY retained earnings $2,035 200 $940,000 Current liabilities Net income 338,000 200,000 Long term liabilities Dividends (200,000) (40,000) Common stock COY retained earnings $2,173 200 $1,100,000 APIC Retained earnings 4,000,000 1,000,000 $7,473,200 $2,800,000 $800,000 $500,000 3,000,000 900.000 500,000 100,000 1,000,000 200,000 2,173,200 1.100.000 $7,473,200 $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.) Unamortized Unamortized Unamortized Unamortized AAP 2013 AAP 2014 AAP 2015 2016 1/1/2013 Amortization 12/31/2013 Amortization 12/31/2014 Amortization 12/31/2015 Amortization AAP 1009 Palent 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 8046 Patent 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20% Patent 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 0 0 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Intercompany profit on 1/1/19 Intercompany profit on 12/31/19 0 0 0 c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Use a negative sign with your answer to indicate a reduction to net income. Cquity investment at 1/1/19: 80% x book value of the net assets of subsidiary Add: 0 0 Less: 0 0 Cquity investment at 12/31/19: 80% x book value of the net assets of subsidiary Add: 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 Cquity Investment at 1/1/19 Nel income 0 0 Dividends 0 O AAP amortization 0 0 Cquity Investment at 12/31/19 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. Use a negative sign with your answer to indicate a reduction to net income. . 0 0 0 0 0 0 > 0 0 Parent's stand-alone net income Subsidiary's stand-alone net income Plus: Less: Less: 100% AAP amortization Consolidated net income Parent's stand-alone net income 20% Subsidiary's stand-alone net income Plus: Less: Less: 80% AAP amortization Consolidated net income attributable to the controlling interest 20% of subsidiary's stand-alone net income Plus: Less: Less: 20% AAP amortization Consolidated net income attributable to the noncontrolling interest . 0 0 0 0 . 0 0 1 0 3. Complete the consolidating entries according to the C-E-A-D-I sequence. Credit 0 1 0 0 0 0 3. Complete the consolidating entries according to the C-E-A-D-1 sequence. Consolidation Worksheet Description Debit [C] Equity income 0 0 Dividends 0 [quity investment 0 0 Common stock 0 APIC 0 0 [quity investment 0 0 [A1 Patent 0 0 [quity investment 0 0 [C] 0 0 1 0 0 1 0 0 1 0 0 0 0 [] 0 0 0 [lcags Equity investment 0 0 0 0 0 0 [sales 0 0 0 [lcogs 0 0 0 0 [Ipay] 0 0 0 0