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:
\f2012 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 $105,000Parent Income statement: Sales $6,770,000 Cost of goods sold (4,739,000) Gross profit 2,031,000 Equity income 249,872 Operating expenses (1,242,600) Net income $1,038,272 Statement of retained earnings: BOY retained earnings $3,401,248 Net income 1,038,272 Dividends (199,210) EOY retained earnings $4,240,310 Subsidiary $2,521,500 (1,511,100) 1,010,400 (654,810) 355,590 $1,301,225 355,590 (35,259) $1,621,556 Parent Balance sheet: Assets Cash $798,240 Accounts receivable 866,560 Inventory 1,313,380 Equity investment 1,849,065 Property, plant and equipment (PPE), net 6,317,764 $1 1,145,009 Liabilities and stockholders' equity Current liabilities $972,849 Longterm liabilities 4,000,000 Common stock 1,106,895 APIC 824,955 Retained earnings 4,240,310 $11,145,009 Subsidiary $699,785 584,292 750,513 1,388,533 $3,423,123 $534,292 839,500 157,900 209,875 1,621,556 $3,423,123 Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized AAP 2007 AAP 2008 AAP 2009 AAP 2010 AAP 2011 AAP 1/1/2007 Amortization 1/1/2008 Amortization 1/1/2009 Amortization 1/1/2010 Amortization 1/1/2011 Amortization 1/1/2012 Patent Goodwill Controlling Interest: Patent Goodwill Noncontrolling Interest: Patent GoodwillEquity investment at 1/1/13: Common stock APIC Retained earnings Less: Equity investment at 12/31/13: Common stock APIC Retained earnings Unamortized AAP Less:Equity Investment Balance at 1/1/13 Net income Dividends AAP amortization Balance at 12/31/13\fConsolidated: Parent's stand-alone net income Subsidiary's stand-alone net income Plus: Less: 100% AAP amortization Subsidiary's adjusted stand-alone net income Consolidated net income Parent: Parent's stand-alone net income 80% Subsidiary's stand-alone net income Plus: Less: 80% AAP amortization 80% of subsidiary's stand-alone net income Consolidated net income attributable to the parent Subsidiary: 20% of subsidiary's stand-alone net income Plus: Less: 20% AAP amortizationConsolidation Worksheet Description Debit Credit [C] Equity income Dividends Equity investment [E] Common stock APIC Equity investment [A] Patent Equity investment [D] [lcogs] Equity investment [Isales]Equity Investment Balance at 1f1f13 0 Net income D D Dividends 0 MP amortization Balance at 12f31i13 _ Net Income BOY upstream inventory profits EDY upstream inventory prots e. Independently compute the owners' equity . Dividends subsidiary_ AAP amortization \fConsolidated: Parent's stand-alone net income 0 Subsidiary's stand-alone net income 0 Plus: 0 Less: 0 80% AAP amortization 20% AAP amortization 0 Subsid 100% AAP amortization Conso 80% realized upstream deferred profits 0 Paren 20% realized upstream deferred profits Paren 100% realized upstream deferred profits 0 80% S 80% unrealized upstream deferred profits 20% unrealized upstream deferred profits 0 Plus: 100% unrealized upstream deferred profits 0 Less: 0
