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

A parent company acquired its 70% interest in its subsidiary on January 1, 2014. On the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $455,000 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 amortization, with no terminal value.

In January 2017, the subsidiary sold Equipment to the parent for a cash price of $325,000. The subsidiary acquired the equipment at a cost of $624,000 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, 2019. The parent uses the equity method to account for its Equity Investment.

Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent Subsidiary Balance sheet: $4,420,000 $1,170,000 Assets (3,120,000) (650,000) Cash 1,300,000 520,000 Accounts receivable 104,195 Inventory (678,600) (325,000) PPE, net $725,595 $195,000 Equity investment $805,350 $325,000 689,000 546,000 1,170,000 715,000 4,550,000 1,300,000 551,005 $7,765,355 $2,886,000 Statement of retained earnings: BOY retained earnings $2,307,760 Net income 725,595 Dividends EOY retained earnings (130,000) $2,903,355 $260,000 Liabilities and stockholders' equity 195,000 Accounts payable Other current liabilities (39,000) Long-term liabilities $416,000 Common stock APIC Retained earnings $442,000 $325,000 520,000 390,000 1,950,000 1,430,000 260,000 130,000 1,690,000 195,000 2,903,355 416,000 $7,765,355 $2,886,000 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. 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. Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized AAP 2014 AAP 2015 AAP 2016 2017 AAP 2018 AAP 2019 1/1/2014 Amortization 1/1/2015 Amortization 1/1/2016 Amortization 1/1/2017 Amortization 1/1/2018 Amortization 1/1/2019 Amortization agreement 455000 65000 390000 65000 325000 65000 260000 65000 95000 65000 130000 65000 ing interest: agreement 318500 45500 273000 45500 227500 45500 182000 45500 136500 45500 91000 45500 trolling interest: agreement 136500 19500 117000 19500 97500 19500 78000 19500 58500 1 9500 39000 19500 Unamortized 1/1/2020 65000 45500 19500 b. Calculate and organize the profits and losses on intercompany transactions and balances. Use negative signs with answers that are reductions. Downstream Upstream Net intercompany profit deferred at 1/1/19 Less: Deferred intercompany profit recognized during 2019 Net intercompany profit deferred at 12/31/19 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. Equity investment at 1/1/19: Common stock APIC Retained earnings Less: Equity investment at 12/31/19: Common stock APIC Retained earnings Less: d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment Balance at 1/1/19 474110 Net income 136500 27300 Dividends Upstream equipment 18850 45500 AAP amortization - Balance at 12/31/19 551005 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. Noncontrolling interest at 1/1/19: Common stock APIC Retained earnings Less: Noncontrolling interest at 12/31/19: Common stock APIC Retained earnings Less: f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Use negative signs with answers that are reductions. Consolidated: Parent's stand-alone net income Subsidiary's stand-alone net income Plus: Less: Subsidiary's adjusted stand-alone net income Consolidated net income Parent: Parent's stand-alone net income 7096 Subsidiary's stand-alone net income Plus: Less: 70% of subsidiary's stand-alone net income Consolidated net income attributable to the parent Subsidiary: 30% of subsidiary's stand-alone net income Plus: Less: Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent Subsidiary Balance sheet: $4,420,000 $1,170,000 Assets (3,120,000) (650,000) Cash 1,300,000 520,000 Accounts receivable 104,195 Inventory (678,600) (325,000) PPE, net $725,595 $195,000 Equity investment $805,350 $325,000 689,000 546,000 1,170,000 715,000 4,550,000 1,300,000 551,005 $7,765,355 $2,886,000 Statement of retained earnings: BOY retained earnings $2,307,760 Net income 725,595 Dividends EOY retained earnings (130,000) $2,903,355 $260,000 Liabilities and stockholders' equity 195,000 Accounts payable Other current liabilities (39,000) Long-term liabilities $416,000 Common stock APIC Retained earnings $442,000 $325,000 520,000 390,000 1,950,000 1,430,000 260,000 130,000 1,690,000 195,000 2,903,355 416,000 $7,765,355 $2,886,000 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. 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. Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized AAP 2014 AAP 2015 AAP 2016 2017 AAP 2018 AAP 2019 1/1/2014 Amortization 1/1/2015 Amortization 1/1/2016 Amortization 1/1/2017 Amortization 1/1/2018 Amortization 1/1/2019 Amortization agreement 455000 65000 390000 65000 325000 65000 260000 65000 95000 65000 130000 65000 ing interest: agreement 318500 45500 273000 45500 227500 45500 182000 45500 136500 45500 91000 45500 trolling interest: agreement 136500 19500 117000 19500 97500 19500 78000 19500 58500 1 9500 39000 19500 Unamortized 1/1/2020 65000 45500 19500 b. Calculate and organize the profits and losses on intercompany transactions and balances. Use negative signs with answers that are reductions. Downstream Upstream Net intercompany profit deferred at 1/1/19 Less: Deferred intercompany profit recognized during 2019 Net intercompany profit deferred at 12/31/19 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. Equity investment at 1/1/19: Common stock APIC Retained earnings Less: Equity investment at 12/31/19: Common stock APIC Retained earnings Less: d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment Balance at 1/1/19 474110 Net income 136500 27300 Dividends Upstream equipment 18850 45500 AAP amortization - Balance at 12/31/19 551005 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. Noncontrolling interest at 1/1/19: Common stock APIC Retained earnings Less: Noncontrolling interest at 12/31/19: Common stock APIC Retained earnings Less: f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Use negative signs with answers that are reductions. Consolidated: Parent's stand-alone net income Subsidiary's stand-alone net income Plus: Less: Subsidiary's adjusted stand-alone net income Consolidated net income Parent: Parent's stand-alone net income 7096 Subsidiary's stand-alone net income Plus: Less: 70% of subsidiary's stand-alone net income Consolidated net income attributable to the parent Subsidiary: 30% of subsidiary's stand-alone net income Plus: Less