On January 1, 2021, Pikes Corporation loaned Venti Company $321,000 and agreed to guarantee all of Venti's long-term debt in exchange for (1) decision-making authority over all of Venti's activities and (2) an annual management fee of 25 percent of Venti's annual revenues. As a result of the agreement, Pikes becomes the primary beneficiary of Venti (now a variable interest entity). Pikes loan to Venti stipulated a 9 percent (market) rate of interest to be paid annually with principal due in 10 years. On January 1, 2021, Pikes estimated that the fair value of Venti's equity shares equaled $96,000 while Venti's book value was $76,000. Any excess fair over book value at that date was attributed to Venti's trademark with an indefinite life. Because Pikes owns no equity in Venti, all of the acquisition-date excess fair over book value is allocated to the noncontrolling interest. Venti paid Pikes 25 percent of its 2021 revenues at the end of the year and recorded the payment in other operating expenses. Venti also paid the interest to Pikes for the loan. On December 31, 2021, Pikes and Venti submitted the following statements for consolidation. (Parentheses indicate credit balances.) Venti $ (237,000) 91,100 66,100 Pikes $ (813,000) (59,250) 642,000 97,000 (28,890) (162,140) (1,384,200) (162,140) 79,200 (1,467,140) 465,000 321,000 Revenues Management fee Cost of good sold Other operating expenses Interest income Interest expense Net income Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31 Current assets Loan receivable from Venti Equipment (net) Trademark Total assets Current liabilities Loan payable to Pikes Other long-term debt Common stock Retained earnings, 12/31 Total liabilities and equity 41,100 (38,700) (61, 000) (38,700) (99,700) 94,000 766,000 1,552,000 (34,860) 548,000 146,000 788,000 (113, 000) (321, 000) (239,300) (15,000) (99,700) $ (788,000) (50,000) (1,467,140) $(1,552,000) Prepare the December 31, 2021, consolidation worksheet for Pikes and its variable interest entity Venti. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.) Consolidated NCI Balances $ Revenues Management fee Cost of good sold Other operating expenses Interest income Pikes and Venti Companies Consolidation Worksheet Year Ended December 31, 2021 Consolidation Entries Pikes Venti Debit Credit 813,000 $ 237,000 59,250 0 642,000 91,100 97,000 66,100 28,890 0 0 41,100 162, 140 $ 38,700 Interest expense Net income $ Consolidated net income to noncontrolling interest to Pikes Retained earnings, 1/1 $ 61,000 Net income 38,700 0 $ 1,384,200 $ 162, 140 79,200 1,467,140 $ 465,000 $ 321,000 766,000 Dividends declared Retained earnings, 12/31 Current assets Loan receivable from Venti 99,700 $ 94,000 0 Equipment (net) Trademark 0 Total assets $ 1,552,000 $ 34,860 548,000 146,000 788,000 113,000 321,000 239,300 15,000 0 Current liabilities Loan payable to Pikes Other long-term debt Common stock Noncontrolling interest Retained earnings, 12/31 Total liabilities and equity 0 50,000 0 0 1,467,140 1,552,000 $ 99,700 788,000 $
