Please show the work.

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.

	Parent	Subsidiary		Parent			Subsidiary
Income Statement			Balance Sheet
Sales	$3,400,000	$900,000	Assets
Cost of goods sold	(2,400,000)	(500,000)	Cash	$619,500			$250,000
Gross profit	1,000,000	400,000	Accounts receivable	530,000			420,000
Income (loss) from subsidiary	85,875		Inventory	900,000			550,000
Operating expenses	(522,000)	(225,000)	PPE, net	3,500,000			1,000,000
Net income	$563,875	150,000	Equity investment	454,125
				$6,003,625			$2,220,000
Statement of retained earnings:			Liabilities and stockers equity
BOY retained earnings	$1,799,750	$200,000	Accounts payable		$340,000	$250,000
Net income	563,875	150,000	Other current liabilities		400,000	300,000
			Long-term liabilities		1,500,000	1,100,000
Dividends	(100,000)	(30,000)	Common stock		200,000	100,000
EOY retained earnings	$2,263,625	$320,000	APIC		1,300,000	150,000
			Retained earnings		2,263,625	320,000
					$6,003,625	$2,220,000

d. Reconstruct the activity in the parents pre-consolidation Equity Investment T-account for the year of consolidation.

Equity Investment
Balance at 1/1/16	Answer	0
Net income	112,500	22,500	Dividends
Upstream PPE, net	Answer	Answer	AAP amortization
Balance at 12/31/16	Answer	0

e. Independently compute the owners equity attributable to the noncontrolling interest beginning and ending balances starting with the owners equity of the subsidiary.

Use negative signs with answers that are reductions.

Equity investment at 1/1/16:
Common stock	25,000
APIC	37,500
Retained earnings	80,000 (wrong)
Unamortized AAP	Answer
Less: 25% of upstream deferred intercompany profits	Answer
	Answer
Equity investment at 12/31/16:
Common stock	25,000
APIC	37,500
Retained earnings	80,000
Unamortized AAP	Answer
Less: 25% of upstream deferred intercompany profit	Answer
	Answer