On 1/1/2019, America Corp. bought a 15% interest in Australia Corp. The acquisition price of $195,000 reflected an assessment that all of Australia’s accounts were fairly valued within the accounting records. During 2019, Australia reported net income of $100,000 and paid cash dividends of $30,000. America possessed the ability to influence significantly Australia’s operations, and therefore, accounted for this investment using the equity method.

On 1/1/2020, America acquired an additional 80% for $1,500,000 cash. The consideration transferred by America in its second acquisition of Australia represents the best available evidence for measuring the fair value of Australia Corp. at 1/1/2020.

Also, as of 1/1/2020, America assessed a $400,000 value to an unrecorded customer contract recently negotiated by Australia. The customer contract is anticipated to have a remaining life of 4-years. Australia’s other assets and liabilities were judged to have fair values equal to their book values. America elects to continue applying the equity method to this investment for internal reporting purposes.

Required:

1. Calculate the following amounts on America pre-consolidation 2020 statement (10 points):
   1. Investment in Australia
   2. Income in Australia’s earnings
   3. Gain (Loss) on Revaluation of Investment in Australia to fair value
2. Calculate the balance of NCI at December 31, 2020. Provide detail calculations (5 points).
3. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2020 (25 points).

 

At December 31, 2020, the following financial information is available for consolidation: America Australia BALANCE SHEET December 31, 2020 December 31, 2020 Current Assets 177,500 550,000 Investment in Australia Company Property, plant, and equipment 826,000 610,000 Patented Technology 850,000 410,000 Total Assets 1,570,000 Liabilities 1,300,000 90,000 Common Stock 900,000 550,000 APIC 180,000 220,000 R/E January 1, 2020 965,000 600,000 Net Income 150,000 Dividend Paid (140,000) (40,000) Total Liabilities + Equity 1,570,000 INCOME STATEMENT America Australia 2020 2020 Revenue 931,000 380,000 Operating Expenses (615,000) (230,000) Income in Australia's earning Gain(Loss) on revaluation of Investment in Australia to fair value Net Income ? 150,000