Prepare the consolidate entries equity method with no controlling interest
g. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. 2, 3 57. Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest, AAP, and downstream intercompany inventory sale Assume, on January 1, 2016, a parent company acquired a 70% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $160,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [ A] asset: [A] Asset Initial Fair Value Useful Life Property, plant & equipment . $160,000 10 years This acquisition resulted in no recognized goodwill. Assume the parent sells inventory to the subsidiary (downstream) 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: Activate Windows Go to Settings to activate Windo D V7 ) ENG 3/Cambridge Business Publishers Chapter 5 | Consolidated Financial Statements with Less Than 100% Ownership 377 2018 2019 Transfer price for inventory sale . . $210,000 $200,000 Cost of goods sold ... . . (150,000) (170,000) Gross profit. ....... $ 60,000 $ 30,000 Inventory remaining 40% 30% Gross profit deferred. $ 24,000 $ 9.000 EOY receivable/payable . . $ 30,000 $ 20,000 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 subsid- iary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales. . . . . . $6,400,000 $1,500,000 Cash . .. $ 400,000 $ 80,000 Cost of goods sold . (4,500,000) (1,000,000) Accounts receivable . 600,000 210,000 800,000 340,000 Gross profit. . . .... . 1,900,000 500,000 Inventory. . . . . Income (loss) from subsidiary Equity investment. . . 761,700 . . . . 143,800 2,800,000 800,000 Operating expenses . . . ....... (1,600,000) (300,000) Property, plant and equipment, net .. . . . $ 200,000 $5,361,700 $1,430,000 Net income . . . 443,800 Statement of retained earnings: Activate Windows Beginning retained earnings. . .. . $1,237,900 $ 715,000 Current liabilities . $ 500,000 $ 125,000 Net income 443 800 200.000 00 009 300 009income statement. Balance sheet Sales. . . .... $6,400,000 $1,500,000 Cash. . . 400,000 $ 80,000 Cost of goods sold .. (4,500,000) (1,000,000) Accounts receivable . 600,000 210,000 1,900,000 Inventory. . . 800,000 340,000 Gross profit. . .... . .. . . 500,000 761,700 Income (loss) from subsidiary . ... 143,800 Equity investment. . . 2,800,000 800,000 Operating expenses . . . . . (1,600,000) (300,000) Property, plant and equipment, net . . ... $ 443,800 $5,361,700 $1,430,000 Net income . . . . . $ 200,000 Statement of retained earnings: Beginning retained earnings. .. . $1,237,900 $ 715,000 Current liabilities . . $ 500,000 $ 125,000 Net income . . . . . 443,800 200,000 Long-term liabilities. . 2,000,000 300,000 Dividends ....... (120,000) (50,000) Common stock . .. 400,000 60,000 Ending retained earnings . $1,561,700 $ 865,000 Additional paid-in capital. 900,000 80,000 Retained earnings 1,561,700 865,000 $5,361,700 $1,430,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. b. Calculate and organize the profits and losses on intercompany transactions and balances. c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders equity of the subsidiary. d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. g. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the Activate Windows consolidation worksheet. Go to Settings to activate windows LO2. 3
