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Question 6 Not complete Marked out of 242.00 Flag question Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest, AAP, and upstream intercompany inventory sale Assume, on January 1, 2013, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $480,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: [A] Asset Initial Fair Value Useful Life Patent $180,000 10 years Goodwill 300,000 Indefinite $480,000 80% of the Goodwill is allocated to the parent. Assume the subsidiary sells inventory to the parent (upstream) which includes that inventory in products that it ultimately sells to customers outside of the controlled group. You have compiled the following data as of 2018 and 2019: 2018 2019 Transfer price for inventory sale $500,000 |$600,000 Cost of goods sold (420,000) (450,000) Gross profit $80,000 $150,000 9% Inventory remaining 35% 259% Gross profit deferred $28,000 $37,500 EOY receivable/payable $80,000 $140,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the equity method of pre-consolidation investment bookkeeping. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2019: arent Subsidiary arent Subsidiary Income statement: Balance sheet: Sales $6,700,000 $2,500,000 Cash $500,000 $400,000 Cost of goods sold (4,500,000) (1,500,000) Accounts receivable 700,000 600,000 Gross profit 2,200,000 1,000,000 Inventory 900,000 800,000 Income (loss) from subsidiary 138,000 Equity investment 1,373,200 Operating expenses (2,000,000) (800,000) Property, plant and equipment (PPE), net 4,000,000 1,000,000 Net income $338,000 $200,000 $7,473,200 $2,800,000 Statement of retained earnings: BOY retained earnings $2,035,200 $940,000 Current liabilities $800,000 $500,000 Net income 338,000 200,000 Long-term liabilities 3,000,000 900,000 Dividends (200,000) (40,000) Common stock 500,000 100,000 EOY retained earnings $2,173,200 $1,100,000 APIC 1,000,000 200,000 Retained earnings 2,173,200 1,100,000 $7,473,200 $2,800,000a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. (Complete for the first four years only.) Unamortized Unamortized Unamortized Unamortized AAP 2013 AAP 2014 AAP 2015 AAP 2016 1/1/2013 Amortization 12/31/2013 Amortization 12/31/2014 Amortization 12/31/2015 Amortization 100% Patent Goodwill 80% Patent Goodwill 0 20% Patent Goodwill b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Intercompany profit on 1/1/19 Intercompany profit on 12/31/19 0 c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Use a negative sign with your answer to indicate a reduction to net income. Equity investment at 1/1/19: 80% x book value of the net assets of subsidiary Add: Less: Equity investment at 12/31/19: 80% x book value of the net assets of subsidiary Add: Less: d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment Equity Investment at 1/1/19 Net income 0 Dividends 0 AAP amortization Equity Investment at 12/31/19e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. Use a negative sign with your answer to indicate a reduction to net income. Noncontrolling interest at 1/1/19: 20% of book value of the net assets of subsidiary Add: Less: 0 Noncontrolling interest at 12/31/19: 20%% of book value of the net assets of subsidiary 0 Add: Less: f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Use a negative sign with your answer to indicate a reduction to net income. Parent's stand-alone net income Subsidiary's stand-alone net income Plus: Less: Less: 100% AAP amortization Consolidated net income Parent's stand-alone net income 80% Subsidiary's stand-alone net income Plus: Less: Less: 80% AAP amortization Consolidated net income attributable to the controlling interest 20% of subsidiary's stand-alone net income 0 Plus: Less: Less: 20% AAP amortization Consolidated net income attributable to the noncontrolling interest 0g. Complete the consolidating entries according to the C-E-A-D-I sequence. Consolidation Worksheet Description Debit Credit [C] Equity income 0 0 Dividends 0 Equity investment # [E Common stock APIC # Equity investment [A] Patent # Equity investment [lcogs] Equity investment [Isales] 090090 6 6 [Icogs] [Ipay] Check Previous 9 Save Answers Finish attempt
