Question 3 Answer saved Marked out of 1.00 P Flag question Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest and AAP Assume, on January 1, 2015, a parent company acquired a 90% interest in its subsidiary. The total fair value of the controlling and noncontrolling interest was $495,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: Original Original [A] Asset Amount Useful Life Property, plant, and equipment $ 170,000 10 years 100,000 5 years Goodwill 225,000 Indefinite $ 495,000 Customer list 90% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement Balance sheet: Sales $5,760,000 1,530,000 Assets Cost of goods sold (4,000,000) (960,000) Cash $ 400,000 $ 90,000 Gross profit 1,760,000 570,000 Accounts receivable 752,000 200,000 Equity income 119,700 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 936,000 Net income 759,700 170,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,288,000 $1,450,000 Beginning retained earnings: 1,408,300 400,000 Liabilities and stockholders' equity Net income 759,700 170,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 Ending retained earnings $2,008,000 $530,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 2,008,000 530,000 $ 5,288,000 $1,450,000 400,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Unamort Unamort Unamort Unamort Unamort Unamort 2015 2016 2017 2018 2019 AAP 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort 12/31/17 Amort 12/31/18 Amort 12/31/19 PPE, net $ 170,000 $ 17000 $ 153000 $ 17000 $ 136000 $ 17000 $ 119000 $ 17000 $ 102000 $ 17000 $ 85000 Customer list 100,000 20000 80000 20000 60000 20000 40000 20000 20000 20000 0 Goodwill 225,000 0 225000 0 225000 0 225000 0 225000 0 225000 $495,000 $ 370000 $ 458000 $ 37000 $ 421000 $ 37000 $ 384000 $ 37000 $ 347000 $ 37000 $ 310000 Parent (p%): PPE, net $ 0 $ 0 $ 0 $ 0$ 0 $ 0$ 0$ 0$ 0$ 0 $ 0 Customer list 0 0 0 0 0 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 $ 0$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Subsidiary (nci%): PPE, net $ 0$ 0 $ 0 $ 0 $ $ 0 $ 0 $ 0$ 0 $ 0 $ 0 $ 0 Customer list 0 0 0 0 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 $ 0 $ 0$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 o b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions) C. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Equity investment account at 1/1/19 p% book value of subsidiary's net assets $ 0 Unamortized p% AAP 0 0 Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ Unamortized p%AAP 0 0 0 d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment 0 0 0 0 0 0 0 e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. Noncontrolling interests at 1/1/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 0 0 Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 0 0 $ 0 f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Note:Use a negative sign with your answer to indicate a reduction to net income. Parent's stand-alone net income $ 0 Subsidiary's stand-alone net income 0 100% AAP amortization 0 Consolidated net income Parent's stand-alone net income p% of subsidiary's stand-alone net income p% AAP amortization 0 Consolidated net income attributable to the controlling interest nci% of subsidiary's stand-alone net income nci% AAP amortization Consolidated net income attributable to the noncontrolling interest $ $ 0 0 $ 0 $ 0 0 0 (40,000) g. Complete the complete the consolidation worksheet. Note: Use negative signs with your answers in the Consolidated column when appropriate (Cost of goods sold, Operating expenses and Dividends). Consolidation Entries Parent Subsidiary Dr Cr Consolidated Income Statement: Sales $5,760,000 $1,530,000 $ 0 Cost of Goods sold (4,000,000) (960,000) 0 Gross profit 1,760,000 570,000 0 Income (loss) from subsidiary 119,700 [C] 0 0 Operating expenses (1,120,000) (400,000) [D] 0 0 Net Income $759,700 $170,000 0 Consolidated NI atrib to NCI [C] 0 0 Consolidated NI attrib to CI $ 0 Statement of Ret Earnings: BOY retained earnings $1,408,300 $400,000 [E] 0 0 $ 0 Net income 759,700 170,000 0 0 Dividends (160,000) 0 [C] 0 EOY retained earnings $2,008,000 $530,000 $ 0 Balance Sheet: Cash $400,000 $90,000 $ $ 0 Accounts receivable 752,000 200,000 0 Inventory 960,000 440,000 0 Equity investment 936,000 O [C] 0 0 [E] O [A] PPE, net 2,240,000 720,000 [A] 0 0 [D] 0 Customer List [A] A 0 O [D] 0 0 Goodwill [A] 0 0 $5,288,000 $1,450,000 $ 0 Current liabilities $800,000 0 0 Long-term liabilities 1,600,000 400,000 0 Common stock 160,000 80,000 [E] 0 0 APIC 120,000 [E] 0 0 0 Retained earnings 2,008,000 530,000 0 Noncontrolling interest 0 [0] 0 0 [E] 0 [A] $5,288,000 $1,450,000 $ 0 $ 0 $ 0 0 $320,000 720,000 Question 3 Answer saved Marked out of 1.00 P Flag question Consolidation subsequent to date of acquisition-Equity method with noncontrolling interest and AAP Assume, on January 1, 2015, a parent company acquired a 90% interest in its subsidiary. The total fair value of the controlling and noncontrolling interest was $495,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: Original Original [A] Asset Amount Useful Life Property, plant, and equipment $ 170,000 10 years 100,000 5 years Goodwill 225,000 Indefinite $ 495,000 Customer list 90% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement Balance sheet: Sales $5,760,000 1,530,000 Assets Cost of goods sold (4,000,000) (960,000) Cash $ 400,000 $ 90,000 Gross profit 1,760,000 570,000 Accounts receivable 752,000 200,000 Equity income 119,700 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 936,000 Net income 759,700 170,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,288,000 $1,450,000 Beginning retained earnings: 1,408,300 400,000 Liabilities and stockholders' equity Net income 759,700 170,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 Ending retained earnings $2,008,000 $530,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 2,008,000 530,000 $ 5,288,000 $1,450,000 400,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. Unamort Unamort Unamort Unamort Unamort Unamort 2015 2016 2017 2018 2019 AAP 100% AAP 01/15/15 Amort 12/31/15 Amort 12/31/16 Amort 12/31/17 Amort 12/31/18 Amort 12/31/19 PPE, net $ 170,000 $ 17000 $ 153000 $ 17000 $ 136000 $ 17000 $ 119000 $ 17000 $ 102000 $ 17000 $ 85000 Customer list 100,000 20000 80000 20000 60000 20000 40000 20000 20000 20000 0 Goodwill 225,000 0 225000 0 225000 0 225000 0 225000 0 225000 $495,000 $ 370000 $ 458000 $ 37000 $ 421000 $ 37000 $ 384000 $ 37000 $ 347000 $ 37000 $ 310000 Parent (p%): PPE, net $ 0 $ 0 $ 0 $ 0$ 0 $ 0$ 0$ 0$ 0$ 0 $ 0 Customer list 0 0 0 0 0 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 $ 0$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Subsidiary (nci%): PPE, net $ 0$ 0 $ 0 $ 0 $ $ 0 $ 0 $ 0$ 0 $ 0 $ 0 $ 0 Customer list 0 0 0 0 0 0 0 0 0 0 0 0 Goodwill 0 0 0 0 0 0 0 0 0 0 0 0 $ 0 $ 0$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 o b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions) C. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Equity investment account at 1/1/19 p% book value of subsidiary's net assets $ 0 Unamortized p% AAP 0 0 Equity investment account at 12/31/19 p% book value of subsidiary's net assets $ Unamortized p%AAP 0 0 0 d. Reconstruct the activity in the parent's pre-consolidation Equity Investment T-account for the year of consolidation. Equity Investment 0 0 0 0 0 0 0 e. Independently compute the owners' equity attributable to the noncontrolling interest beginning and ending balances starting with the owners' equity of the subsidiary. Noncontrolling interests at 1/1/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 0 0 Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ Unamortized nci% AAP 0 0 0 $ 0 f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income. Note:Use a negative sign with your answer to indicate a reduction to net income. Parent's stand-alone net income $ 0 Subsidiary's stand-alone net income 0 100% AAP amortization 0 Consolidated net income Parent's stand-alone net income p% of subsidiary's stand-alone net income p% AAP amortization 0 Consolidated net income attributable to the controlling interest nci% of subsidiary's stand-alone net income nci% AAP amortization Consolidated net income attributable to the noncontrolling interest $ $ 0 0 $ 0 $ 0 0 0 (40,000) g. Complete the complete the consolidation worksheet. Note: Use negative signs with your answers in the Consolidated column when appropriate (Cost of goods sold, Operating expenses and Dividends). Consolidation Entries Parent Subsidiary Dr Cr Consolidated Income Statement: Sales $5,760,000 $1,530,000 $ 0 Cost of Goods sold (4,000,000) (960,000) 0 Gross profit 1,760,000 570,000 0 Income (loss) from subsidiary 119,700 [C] 0 0 Operating expenses (1,120,000) (400,000) [D] 0 0 Net Income $759,700 $170,000 0 Consolidated NI atrib to NCI [C] 0 0 Consolidated NI attrib to CI $ 0 Statement of Ret Earnings: BOY retained earnings $1,408,300 $400,000 [E] 0 0 $ 0 Net income 759,700 170,000 0 0 Dividends (160,000) 0 [C] 0 EOY retained earnings $2,008,000 $530,000 $ 0 Balance Sheet: Cash $400,000 $90,000 $ $ 0 Accounts receivable 752,000 200,000 0 Inventory 960,000 440,000 0 Equity investment 936,000 O [C] 0 0 [E] O [A] PPE, net 2,240,000 720,000 [A] 0 0 [D] 0 Customer List [A] A 0 O [D] 0 0 Goodwill [A] 0 0 $5,288,000 $1,450,000 $ 0 Current liabilities $800,000 0 0 Long-term liabilities 1,600,000 400,000 0 Common stock 160,000 80,000 [E] 0 0 APIC 120,000 [E] 0 0 0 Retained earnings 2,008,000 530,000 0 Noncontrolling interest 0 [0] 0 0 [E] 0 [A] $5,288,000 $1,450,000 $ 0 $ 0 $ 0 0 $320,000 720,000