In January 1, 2010, Parent Company acquired 80% interest in a Subsidiary Company for $889,600. Total fair value of the controlling and non-controlling interests on the acquisition date was $1,112,000, which is $440,000 over the book value of the sub?s Shareholder?s equity on the acquisition date. The Parent company assigned the the excess to the following [A] assets

Equity investment account at 12/31/16:?Computation of [ADJ] amount:Non-controlling interest at 12/31/2016[ADJ] Equity Investment[E] Common Stock (Sub)

APIC (Sub)

Retained Earnings (Sub)

Equity Investment

Noncontrolling interest

[A] PPE, net

Patent

Equity Investment

Noncontrolling interest

[D] Operating expense

Patent

• [Icogs] Equity investment

Noncontrolling interest

Cost of Goods Sold

[isales] Sales

COGS

[Icogs] COGS

Inventory

[Ipay] Accounts payable

Accounts receivable

In January 1, 2010, Parent Company acquired 80% interest in a Subsidiary Company for $889,600. Total fair value of the controlling and non-controlling interests on the acquisition date was $1,112,000, which is $440,000 over the book value of the sub's Shareholder's equity on the acquisition date. The Parent company assigned the the excess to the following [A] assets [A] Asset Patent Goodwill Initial Fair Value 160,000 280,000 $440,000 Useful Life (years) 10 Indefinite On the acquisition date, the retained earnings of the subsidiary were $400,000. The acquisition date Goodwill is allocated to the parent and subsidiary in an 80:20 proportion, respectively. 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 2015 and 2016. Transfer price for inventory sale Cost of goods sold Gross profit % inventory remaining Gross profit deferred EOY Receivable/Payable 2015 $ 480,000 (400,000) $ 80,000 25% $ 20,000 $ 56,000 2016 $ 560,000 (464,000) $ 96,000 35% $ 33,600 $ 96,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the cost method of pre-consolidation investment bookkeeping. The parent and subsidiary report the following pre-consolidation financial statements at December 31, 2016. Income Statement Parent Sales $ 5,360,000 Cost of goods sold (3,600,000) Gross Profit 1,760,000 Income (loss) from subsidiary 25,600 Operating expenses (1,600,000) Net income $ 185,600 Consolidated NI attrib to NCI Consolidated NI attrib to CI Statement of Retained Earnings Parent BOY Retained Earnings Net income Dividends EOY Retained Earnings $1,441,000 85,600 (160,000) $1,466,600 Subsidiary $ 2,000,000 (1,200,000) 800,000 $ (640,000) 160,000 Subsidiary $800,000 160,000 (32,000) $928,000 continued next page Balance Sheet Assets: Cash Accounts receivable Inventory Equity Investment PPE, net Liabilities and Stockholders' Equity: Current Liabilities Long-term Liabilities Common Stock APIC Retained Earnings Parent Subsidiary 480,000 640,000 800,000 889,600 2,960,000 $5,769,600 $ 320,000 480,000 640,000 703,000 2,400,000 400,000 800,000 1,466,600 $5,769,600 $ 400,000 640,000 112,000 160,000 928,000 $2,240,000 $ $ 800,000 $2,240,000 Noncontrolling interest Required: a. Compute the pre-consolidation Equity investment accounting ending balance. Assuming the parent company used the equity method instead of cost method. For each computation, start with Shareholder's equity of subsidiary/ b. Compute the amount of [ADJ] consolidation Entry. c. Independently compute the owner's equity attributable to the non-controlling interest ending balance starting with the owners' equity of subsidiary. d. Compute the consolidating entries according to the CEADI sequence. Answer: a. Equity investment account at 12/31/16: 80% x Book value Net assets of subsidiary: Add: Unamortized (80%) AAP: Less: 80% of upstream deferred intercompany profits: b. -Computation of [ADJ] amount: -80% of change in Retained Earnings (Sub) from acquisition date through BOY: -Less: Cum. 80% AAP amort. from acquisition date through BOY: -Less: 80% of BOY U-S uncontrolled intercompany inventory profits: -[ADJ] Amount: c. Non-controlling interest at 12/31/2016 20% of book value of net assets of sub Add: 20% unamortized AAP Less: 10% of upstream deferred intercompany profits d. [ADJ] Equity Investment Retained Earnings of Parent BOY [C] Equitty investment income Consolidated Net Income attribute to non-controlling interest Dividend Noncontrolling interest e. [E] Common Stock (Sub) APIC (Sub) Retained Earnings (Sub) Equity Investment Noncontrolling interest [A] PPE, net Patent Equity Investment Noncontrolling interest [D] Operating expense Patent [Icogs] Equity investment Noncontrolling interest Cost of Goods Sold [isales] Sales COGS [Icogs] COGS Inventory [Ipay] Accounts payable Accounts receivable \fAnswers a. Equity investment account at 12/31/16: 80% x Book value Net assets of subsidiary: 80% x $800,000 = $640,000 Add: Unamortized (80%) AAP: 80% x $960,000 = $768,400 Less: 80% of upstream deferred intercompany profits: 80% x $33,600 = ($26,880) = $1,381,5220 b. -Computation of [ADJ] amount: -80% of change in Retained Earnings (Sub) from acquisition date through BOY: -Less: Cum. 80% AAP amort. from acquisition date through BOY: -Less: 80% of BOY U-S uncontrolled intercompany inventory profits: -[: 80% x $928,000 = $742,400 Less: 80% x $160,000 =$128,000 Less: 80% x $80,000 = $64,000 ADJ] Amount = $550,400 c. Non-controlling interest at 12/31/2016 20% of book value of net assets of sub 20% x 800,000 = $160,000 Add: 20% unamortized AAP 20% x 960,000 = $ 192,000 Less: 10% of upstream deferred intercompany profits 10% x 33,600 = $ 3,360 $348,640 Debit(dr) Credit(cr) d. [ADJ] Equity Investment $ 550,400 Retained Earnings of Parent BOY $1,441,000 [C] Equitty investment income Consolidated Net Income attribute to non-controlling interest $348,640 Dividend $ 32,000 Noncontrolling interest $2, 240, 000 e. [E] Common Stock (Sub) $112,000 APIC (Sub) $ 160,000 Retained Earnings (Sub) $ 928,000 Equity Investment $550,400 Noncontrolling interest $2,240,000 [A] PPE, net $800,000 Patent $160,000 Equity Investment $550,400 Noncontrolling interest $2,240,000 [D] Operating expense $ 640,000 Patent $160,000 [Icogs] Equity investment $2,240,000 $550,400 Noncontrolling interest Cost $1,200,000 of Goods [isales] Sales COGS $1,200,000 [Icogs] COGS Inventory $640,000 $2,000,000 [Ipay] Accounts payable Accounts $480,000 $400,000 Sold $1,200,000 receivable