Problem 6-26 (LO 6-2) On January 1, 2018, Access IT Company exchanged $870,000 for 30 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $2,540,000. In contractual agreements with the sole owner of the remaining 70 percent of Net Connect, Access IT was granted (1) various decision- making rights over Net Connect's operating decisions and (2) special service purchase provisions at below-market rates. As a result of these contractual agreements, Access IT established itself as the primary beneficiary of Net Connect. Immediately after the purchase, Access IT and Net Connect presented the following balance sheets: Net Connect $ 28,000 Access IT $ 48,000 870,000 968,000 1,053,000 903,000 Cash Investment in Net Connect Capitalized software Computer equipment Communications equipment Patent Total assets Long-term debt Common stock-Access IT Common stock-Net Connect Retained earnings Total liabilities and equity 143,000 43,000 323,000 178,000 $ 715,000 $ (603,000) $ 3,842,000 $ (928,000) (2,530,000) (384,000) $ (3,842,000) (28,000) (84,000) $ (715,000) Each of the above amounts represents a fair value at January 1, 2018. The fair value of the 70 percent of Net Connect shares not owned by Access IT was $2,030,000. Prepare an acquisition-date consolidated worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the NCI and Consolidated Totals columns should be entered with a minus sign.) Answer is complete but not entirely correct. Consolidated NCI ACCESS IT COMPANY AND NET CONNECT Consolidation Worksheet January 1, 2018 Consolidation Entries Net Access IT Debit Credit Connect 48,000 $ 28,000 870,000 870,000 968,000 143,000 1,053,000 43,000 903,000 323,000 Balances 76,000 $ 1,111,000 1,096,000 1,226,000 2,540,000 2,540,000 Cash Investment in NetConnect Capitalized software Computer equipment Communications equipment Research and development asset Patent Goodwill Total assets Long-term debt Common stock-Access IT Common stock-NetConnect Retained earnings Noncontrolling interest 178,000 248,000 $ 3,842,000 $ (928,000) (2,530,000) $ 715,000 $ (603,000) 178,000 248,000 $ 6,475,000 $ (1,531,000) (2,530,000) (28,000) (84,000) 8,400 X 25,200 (384,000) (19,600) > (58,800) > (1,951,600) 1,951,600 $ 2,821,600 (384,000) (2,030,000) $ (6,475,000) Total liabilities and equity (3.842,000) $ (715,000) $ 2,821,600
