On January 1, 2021, Pikes Corporation loaned Venti Company $323,000 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 8 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 $98,000 while Venti's book value was $78,000. 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 $ (239,000) Pikes $ (815,000) (59,750) 644,000 99,000 (25,840) 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 (157,590) (1,384,600) (157,590) 79,600 (1,462,590) 485,000 323,000 718,000 0 1,526,000 (13,410) 91,300 66,300 0 41,300 (40,100) (63,000) (40,100) 0 (103,100) 96,000 550,000 148,000 794,000 (115, 000) (323, 000) (237,900) (15,000) (103, 100 $ (794, 000) 0 (50,000) (1,462,590) $(1,526,000) Consolidated Balances NCI $ Year Ended December 31, 2021 Consolidation Entries Pikes Venti Debit Credit 815,000 $ 239,000 59,750 0 644,000 91,300 99,000 66,300 25,840 0 0 41,300 157,590 $ 40,100 $ $ Revenues Management fee Cost of good sold Other operating expenses Interest income Interest expense Net income Consolidated net income to noncontrolling interest to Pikes 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 Noncontrolling interest Retained earnings, 12/31 Total liabilities and equity $ $ 1,384,600 $ 157,590 79,600 1,462,590 $ 485,000 $ 323,000 718,000 0 1,526,000 $ 13,410 63,000 40,100 0 103,100 96,000 0 550,000 148,000 794,000 115,000 323,000 237,900 15,000 $ 0 0 50,000 0 0 $ 1,462,590 1,526,000 $ 103,100 794,000 $
