Consolidation subsequent to date of acquisition-upstream intercompany inventory sale- Equity method with noncontrolling interest, AAP, and upstream intercompany inventory sale Assume that, on January 1, 2007, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $550,000 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 (years)
Patent	$300,000	10
Goodwill	250,000	Indefinite
	$550,000

80% 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 2012 and 2013:

	2012	2013
Transfer price for inventory sale	$674,000	$733,000
Cost of goods sold	(615,000)	(653,000)
Gross profit	$59,000	$80,000
% inventory remaining	25%	35%
Gross profit deferred	$14,750	$28,000
EOY receivable/payable	$93,000	$105,000

The inventory not remaining at the end of the year has been sold outside of the controlled group.The parent and the subsidiary report the following financial statements at December 31, 2013:

	Parent	Subsidiary			Parent	Subsidiary
Income statement:				Balance sheet:
Sales	$6,770,000	$2,521,500		Assets
Cost of goods sold	(4,739,000)	(1,511,100)		Cash	$798,240	$699,785
Gross profit	2,031,000	1,010,400		Accounts receivable	866,560	584,292
Equity income	249,872			Inventory	1,313,380	750,513
Operating expenses	(1,242,600)	(654,810)		Equity investment	1,849,065
Net income	$1,038,272	355,590		Property, plant and equipment (PPE), net	6,317,764	1,388,533
					$11,145,009	$3,423,123
Statement of retained earnings:
BOY retained earnings	$3,401,248	$1,301,225		Liabilities and stockholders' equity
Net income	1,038,272	355,590		Current liabilities	$972,849	$584,292
Dividends	(199,210)	(35,259)		Long-term liabilities	4,000,000	839,500
EOY retained earnings	$4,240,310	$1,621,556		Common stock	1,106,895	167,900
				APIC	824,955	209,875
				Retained earnings	4,240,310	1,621,556
					$11,145,009	$3,423,123

Question:

e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary.

• Round your answers to the nearest whole number.
• Use a negative sign with your answer to indicate a reduction to net income.

Noncontrolling interest at 1/1/13:
Common stock		33,580
APIC		41,975
Retained earnings		260,245
Unamortized AAP		74,000
Less:	20% of upstream deferred intercompany profits	Answer?
Noncontrolling interest at 12/31/13:
Common stock		33,580
APIC		41,975
Retained earnings		Answer?
Unamortized AAP		68,000
Less:	20% of upstream deferred intercompany profits	(5,600)

f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income.

• Round your answers to the nearest whole number.
• Use a negative sign with your answer to indicate a reduction to net income.

Consolidated:
Parent's stand-alone net income		Answer?
Subsidiary's stand-alone net income		Answer?
Plus:	100% realized upstream deferred profits	Answer?
Less:	100% unrealized upstream deferred profits	(28,000)
	100% AAP amortization	(30,000)
Subsidiary's adjusted stand-alone net income		Answer?
Consolidated net income		Answer
Parent:
Parent's stand-alone net income		Answer?
80% Subsidiary's stand-alone net income		Answer?
Plus:	80% realized upstream deferred profits	Answer
Less:	80% unrealized upstream deferred profits	(22,400)
	80% AAP amortization	(24,000)
80% of subsidiary's stand-alone net income		Answer?
Consolidated net income attributable to the parent		Answer?
Subsidiary:
20% of subsidiary's stand-alone net income		Answer?
Plus:	20% realized upstream deferred profits	Answer?
Less:	20% unrealized upstream deferred profits	(5,600)
	20% AAP amortization	(6,000)
		Answer

g. Complete the consolidating entries according to the C-E-A-D-I sequence.

Round answers to the nearest whole number.

Consolidation Worksheet
Description		Debit	Credit
[C]	Equity income	Answer	0
	Consolidated net income attributable to noncontrolling interest	Answer	0
	Dividends	Answer	Answer
	Equity investment	0	Answer
	Noncontrolling interest	0	Answer
[E]	Common stock	167900	Answer
	APIC	209875	Answer
	Retained earnings	1301225	Answer
	Equity investment	0	Answer
	Noncontrolling interest	0	335800
[A]	Patent	120000	0
	Goodwill	250000	0
	Equity investment	0	296000
	Noncontrolling interest	0	74000
[D]	Operating expenses	Answer	0
	Patent	0	Answer
[Icogs]	Equity investment	Answer	0
	Noncontrolling interest	Answer	0
	Cost of goods sold	0	Answer
[Isales]	Sales	733000	0
	Cost of goods sold	0	733000
[Icogs]	Cost of goods sold	28000	0
	Inventory	0	28000
[Ipay]	Accounts payable	Answer	0
	Accounts receivable	0	Answer