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X 68. Comprehensive consolidation subsequent to date of acquisitionCost method, noncontrolling interest, AAP computation, goodwill, upstream and downstream intercompany inventory profits, downstream intercompany depreciable asset gain A parent company acquired 70% of the stock of a subsidiary company on January 1, 2015, for $182,650. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $130,000, and Retained Earnings, $14,000. On January 1, 2015, the market value for the 30% of shares not purchased by the parent was $77,350. On January 1, 2015, the subsidiary's recorded book values were equal to fair values for all items except four: (1) accounts receivable had a book value of $28,000 and a fair value of $24,000, (2) prop- erty, plant & equipment, net had a book value of $400,000 and a fair value of $435,000, (3) patents had a book value of $60,000 and a fair value of $90,000, and (4) notes payable had a book value of $20,000 and a fair value of $14,000. Both companies use the FIFO inventory method and sell all of their inventories at least once per year. The year-end net balance of accounts receivables are collected in the following year. On the acquisition date, the subsidiary's property, plant & equipment, net had a remaining useful life of 10 years, the patents had a remaining useful life of 6 years, and notes payable had a remaining term of 4 years. On December 31, 2017, the parent sold a building to the subsidiary for $90,000. On this date, the building was carried on the subsidiary's books (net of accumulated depreciation) at $60,000. Both com- panies estimated that the building has a remaining life of 5 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 25 percent of selling price (regardless of the direction of the sale). During 2019, intercompany sales amount to $30,000, of which $20,000 of merchandise remains in the ending inventory of the subsidiary. On December 31, 2019, $10,000 of these intercompany sales remained unpaid. Additionally, the par- ent's December 31, 2018 inventory includes $15,000 of merchandise purchased in the preceding year from the subsidiary. During 2018, intercompany sales amount to $25,000, and on December 31, 2018, $12,000 of these intercompany sales remained unpaid. The parent accounts for its Equity Investment in the subsidiary using the cost method. Uncon- firmed profits are allocated pro-rata. The pre-consolidation financial statements for the two companies for the year ended December 31, 2019, are provided below: Parent Subsidiary Parent Subsidiary Income statement: Sales.... Cost of goods sold Gross profit. Depreciation & amort. expense Operating expenses Interest expense. Total expenses.. Income (loss) from subsidiary. Net income $500,000 (280,000) 220,000 (12,000) (130,000) (6,000) (148,000) $260,000 (125,000) 135,000 (9,000) (24,000) (12,000) (45,000) Balance sheet: Cash... Accounts receivable. Inventories .. Property, plant & equipment, net Other assets. Patents Equity investment. Total assets. $ 160,000 200,000 340,000 1,500,000 78,350 $ 20,000 50,000 80,000 440,000 100,000 10,000 182,650 $2,461,000 $700,000 14,000 $ 86,000 $ 90,000 Statement of retained earnings: Beginning retained earnings. Net income Dividends declared. Ending retained earnings $575,000 86,000 (60,000) $601,000 $290,000 90,000 (20,000) $360,000 Accounts payable Notes payable Other liabilities Common stock. Retained earnings Total liabilities and equity $ 460,000 1,000,000 100,000 300,000 601,000 $2,461,000 $ 22,000 158,000 30,000 130,000 360,000 $700,000 a. c. 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. Compute the pre-consolidation Equity Investment account beginning and ending balances assuming that the parent company used the equity method instead of the cost method. For each of these computations, start with the stockholders' equity of the subsidiary. d. Compute the amount of the (ADJ) consolidating entry. 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 consolidation worksheet. e. X 68. Comprehensive consolidation subsequent to date of acquisitionCost method, noncontrolling interest, AAP computation, goodwill, upstream and downstream intercompany inventory profits, downstream intercompany depreciable asset gain A parent company acquired 70% of the stock of a subsidiary company on January 1, 2015, for $182,650. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $130,000, and Retained Earnings, $14,000. On January 1, 2015, the market value for the 30% of shares not purchased by the parent was $77,350. On January 1, 2015, the subsidiary's recorded book values were equal to fair values for all items except four: (1) accounts receivable had a book value of $28,000 and a fair value of $24,000, (2) prop- erty, plant & equipment, net had a book value of $400,000 and a fair value of $435,000, (3) patents had a book value of $60,000 and a fair value of $90,000, and (4) notes payable had a book value of $20,000 and a fair value of $14,000. Both companies use the FIFO inventory method and sell all of their inventories at least once per year. The year-end net balance of accounts receivables are collected in the following year. On the acquisition date, the subsidiary's property, plant & equipment, net had a remaining useful life of 10 years, the patents had a remaining useful life of 6 years, and notes payable had a remaining term of 4 years. On December 31, 2017, the parent sold a building to the subsidiary for $90,000. On this date, the building was carried on the subsidiary's books (net of accumulated depreciation) at $60,000. Both com- panies estimated that the building has a remaining life of 5 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 25 percent of selling price (regardless of the direction of the sale). During 2019, intercompany sales amount to $30,000, of which $20,000 of merchandise remains in the ending inventory of the subsidiary. On December 31, 2019, $10,000 of these intercompany sales remained unpaid. Additionally, the par- ent's December 31, 2018 inventory includes $15,000 of merchandise purchased in the preceding year from the subsidiary. During 2018, intercompany sales amount to $25,000, and on December 31, 2018, $12,000 of these intercompany sales remained unpaid. The parent accounts for its Equity Investment in the subsidiary using the cost method. Uncon- firmed profits are allocated pro-rata. The pre-consolidation financial statements for the two companies for the year ended December 31, 2019, are provided below: Parent Subsidiary Parent Subsidiary Income statement: Sales.... Cost of goods sold Gross profit. Depreciation & amort. expense Operating expenses Interest expense. Total expenses.. Income (loss) from subsidiary. Net income $500,000 (280,000) 220,000 (12,000) (130,000) (6,000) (148,000) $260,000 (125,000) 135,000 (9,000) (24,000) (12,000) (45,000) Balance sheet: Cash... Accounts receivable. Inventories .. Property, plant & equipment, net Other assets. Patents Equity investment. Total assets. $ 160,000 200,000 340,000 1,500,000 78,350 $ 20,000 50,000 80,000 440,000 100,000 10,000 182,650 $2,461,000 $700,000 14,000 $ 86,000 $ 90,000 Statement of retained earnings: Beginning retained earnings. Net income Dividends declared. Ending retained earnings $575,000 86,000 (60,000) $601,000 $290,000 90,000 (20,000) $360,000 Accounts payable Notes payable Other liabilities Common stock. Retained earnings Total liabilities and equity $ 460,000 1,000,000 100,000 300,000 601,000 $2,461,000 $ 22,000 158,000 30,000 130,000 360,000 $700,000 a. c. 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. Compute the pre-consolidation Equity Investment account beginning and ending balances assuming that the parent company used the equity method instead of the cost method. For each of these computations, start with the stockholders' equity of the subsidiary. d. Compute the amount of the (ADJ) consolidating entry. 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 consolidation worksheet. e
