Question
Please answer B and C. Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest , AAP and gain on upstream intercompany equipment sale A
Please answer B and C. Consolidation subsequent to date of acquisitionEquity method with noncontrolling interest , AAP and gain on upstream intercompany equipment sale A parent company acquired its 75% interest in its subsidiary on January 1, 2011. On the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $350,000 in excess of the book value of the subsidiarys Stockholders Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiarys financial statements (i.e., there is no Goodwill). The Royalty Agreement has a 7 year estimated remaining economic life on the acquisition date. Both companies use straight line depreciation and amortization, with no salvage value. In January 2014, the subsidiary sold Equipment to the parent for a cash price of $250,000. The subsidiary acquired the equipment at a cost of $480,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The subsidiary had depreciated the equipment for 6 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 4 year useful life. Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2016. The parent uses the equity method to account for its Equity Investment.
a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Do no enter any negative answers in part a.
b. Calculate and organize the profits and losses on intercompany transactions and balances. Use negative signs with answers that are reductions.
c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders equity of the subsidiary. Use negative signs with answers that are reductions.
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