Question
On January 1, 2018, Access IT Company exchanged $910,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT
On January 1, 2018, Access IT Company exchanged $910,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $1,870,000.
In contractual agreements with the sole owner of the remaining 60 percent of Net Connect, Access IT was granted (1) various decision-making rights over Net Connect's operating decisions and (2) special service purchase provisions at below-market rates. As a result of these contractual agreements, Access IT established itself as the primary beneficiary of Net Connect. Immediately after the purchase, Access IT and Net Connect presented the following balance sheets:
Access IT | Net Connect | ||||||
Cash | $ | 52,000 | $ | 32,000 | |||
Investment in Net Connect | 910,000 | ||||||
Capitalized software | 972,000 | 147,000 | |||||
Computer equipment | 1,057,000 | 47,000 | |||||
Communications equipment | 907,000 | 327,000 | |||||
Patent | 182,000 | ||||||
Total assets | $ | 3,898,000 | $ | 735,000 | |||
Long-term debt | $ | (932,000 | ) | $ | (607,000 | ) | |
Common stock-Access IT | (2,570,000 | ) | |||||
Common stock-Net Connect | (32,000 | ) | |||||
Retained earnings | (396,000 | ) | (96,000 | ) | |||
Total liabilities and equity | $ | (3,898,000 | ) | $ | (735,000 | ) | |
Each of the above amounts represents a fair value at January 1, 2018. The fair value of the 60 percent of Net Connect shares not owned by Access IT was $1,365,000.
Prepare an acquisition-date consolidated worksheet for Access IT and its variable interest entity
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started