Please explain how you come to $14,500 for 100% realized upstream deferred profit.
Please explain how you come to ($50,000) for 100% AAP amortization.
Please see highlighted section below.
The entire buying and selling of inventory with different years and prices is confusing. If you could break it down that would be appreciated. Thanks.
Consolidation subsequent to date of acquisition-Equity 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,ooo in excess of the book value of the subsidiary's Stockholders' Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiary's financial statements (i.e., there is no Goodll. 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,ooo. The subsidiary acquired the equipment at a cost of $480,ooo 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 he parent uses the equity method to account for its Equity Investment. Parent Subsidiary Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Balance sheet: $3.400,000 $900,000 Assets (2.400,000) (500,000) $619,500 $250,000 530,000 420,000 900,000 550,000 3,500,000 1,000,000 Cash 1,000,000 400,000 Accounts receivable 85,875 Inventory (522,000) (225,000) PPE, net $563,875 150,000 454,125 Net income Equity investment $6,003,625 $2,220,000 Statement of retained earnings: BOY retained earnings Net income $1,799,750 $200,000 Liabilities and stockholders' equity 563,875 150,000 Accounts payable $340,000 $250,000 400,000 300,000 1,500,000 1,100,000 Other current liabilities (100,000) (30,000) Dividends Long-term liabilities $2,263,625 $320,000 EOY retained earnings Common stock 200,000 100,000 1,300,000150,000 2,263,625 320,000 APIC Retained earnings $6,003,625 $2,220,000 f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income Answers f. Parent's stand-alone net income 478,000 150,000 14,500 (50,000) 114,500 592,500 Subsidiary's stand-alone net income Plus: 100% realized upstream deferred profits Less: 100% AAP amortization Subsidiary's adjusted stand-alone net income Consolidated net income Parent's stand-alone net income 478,000 112,500 10,875 37,500 85,875 563,875 75% x subsidiary's stand-alone net income Plus: 75% realized upstream deferred profits Less: 75% AAP amortization 75% x subsidiary's adjusted stand-alone net income Consolidated net income attributable to the CI 25% x subsidiary's stand-alone net income 37,500 3,625 (12,500) 28,625 Plus: 25% realized upstream deferred profits Less: 25% AAP amortization Consolidated net income attributable to the NCI
