Question
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
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 | $675,000 | $733,000 |
Cost of goods sold | (615,000) | (653,000) |
Gross profit | $60,000 | $80,000 |
% inventory remaining | 25% | 35% |
Gross profit deferred | $15,000 | $28,000 |
EOY receivable/payable | $94,000 | $110,000 |
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 | $2,522,500 | Assets | |||
Cost of goods sold | (4,739,000) | (1,511,100) | Cash | $799,240 | $700,785 | |
Gross profit | 2,031,000 | 1,011,400 | Accounts receivable | 866,560 | 584,292 | |
Equity income | 250,872 | Inventory | 1,313,380 | 750,513 | ||
Operating expenses | (1,242,600) | (654,810) | Equity investment | 1,849,865 | ||
Net income | $1,039,272 | 356,590 | Property, plant and equipment (PPE), net | 6,317,764 | 1,388,533 | |
$11,146,809 | $3,424,123 | |||||
Statement of retained earnings: | ||||||
BOY retained earnings | $3,401,248 | $1,301,225 | Liabilities and stockholders' equity | |||
Net income | 1,039,272 | 356,590 | Current liabilities | $972,849 | $584,292 | |
Dividends | (199,210) | (35,259) | Long-term liabilities | 4,000,000 | 839,500 | |
EOY retained earnings | $4,241,310 | $1,622,556 | Common stock | 1,106,895 | 167,900 | |
APIC | 825,755 | 209,875 | ||||
Retained earnings | 4,241,310 | 1,622,556 | ||||
$11,146,809 | $3,424,123 |
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 | Answer
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APIC | Answer
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Retained earnings | Answer
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AnswerCommon stockAPICRetained earningsUnamortized AAP80% of upstream deferred intercompany profits20% of upstream deferred intercompany profits
| Answer
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Less: | AnswerCommon stockAPICRetained earningsUnamortized AAP80% of upstream deferred intercompany profits20% of upstream deferred intercompany profits
| Answer
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Answer
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Noncontrolling interest at 12/31/13: | ||
Common stock | Answer
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APIC | Answer
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Retained earnings | Answer
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AnswerCommon stockAPICRetained earningsUnamortized AAP80% of upstream deferred intercompany profits20% of upstream deferred intercompany profits
| Answer
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Less: | AnswerCommon stockAPICRetained earningsUnamortized AAP80% of upstream deferred intercompany profits20% of upstream deferred intercompany profits
| Answer
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Answer
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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
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Subsidiary's stand-alone net income | Answer
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Plus: | Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits
| Answer
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Less: | Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits
| Answer
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100% AAP amortization | Answer
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Subsidiary's adjusted stand-alone net income | Answer
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Consolidated net income | Answer
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Parent: | ||
Parent's stand-alone net income | Answer
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80% Subsidiary's stand-alone net income | Answer
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Plus: | Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits
| Answer
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Less: | Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits
| Answer
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80% AAP amortization | Answer
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80% of subsidiary's stand-alone net income | Answer
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Consolidated net income attributable to the parent | Answer
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Subsidiary: | ||
20% of subsidiary's stand-alone net income | Answer
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Plus: | Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits
| Answer
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Less: | Answer80% AAP amortization20% AAP amortization100% AAP amortization80% realized upstream deferred profits20% realized upstream deferred profits100% realized upstream deferred profits80% unrealized upstream deferred profits20% unrealized upstream deferred profits100% unrealized upstream deferred profits
| Answer
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20% AAP amortization | Answer
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Answer
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