70.2K

Verified Solution

Link Copied!

Consolidation subsequent to date of acquisition$-$upstream intercompany inventory sale$-$ Equity method with noncontrolling interest, AAP, and upstream intercompany inventory sale

Assume that, on January $1,2007,$ a parent company acquired an $80\%$ interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $$550,000$ over the book value of the subsidiary's Stockholders' Equity on the acquisition date. the parent assigned the excess to the following $[$A$]$ assets:

$[$A$]$ Asset Initial

Fair Value Useful

Life $($years$)$ Patent $$300,00010$ Goodwill $250,000$ Indefinite $$550,000$

$80\%$ of the Goodwill is allocated to the parent. Assume that the subsidiary sells inventory to the parent $($upstream$)$ 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 $2012$ and $2013$:

$20122013$ Transfer price for inventory sale $$673,000$ $$733,000$ Cost of goods sold $(615,000)(653,000)$ Gross profit $$58,000$ $$80,000\%$ inventory remaining $25\%35\%$ Gross profit deferred $$14,500$ $$28,000$ EOY receivable$/$payable $$92,000$ $$95,000$

The inventory not remaining at the end of the year has been sold outside of the controlled group.The parent and the subsidiary report the following financial statements at December $31,2013$:

Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales $$6,770,000$ $$2,520,500$ Assets Cost of goods sold $(4,739,000)(1,511,100)$ Cash $$797,240$ $$698,785$ Gross profit $2,031,0001,009,400$ Accounts receivable $866,560584,292$ Equity income $248,872$ Inventory $1,313,380750,513$ Operating expenses $(1,242,600)(654,810)$ Equity investment $1,848,265$ Net income $$1,037,272354,590$ Property, plant and equipment $($PPE$),$ net $6,317,7641,388,533$ $$11,143,209$ $$3,422,123$ Statement of retained earnings: BOY retained earnings $$3,401,248$ $$1,301,225$ Liabilities and stockholders' equity Net income $1,037,272354,590$ Current liabilities $$972,849$ $$584,292$ Dividends $(199,210)(35,259)$ Long$-$term liabilities $4,000,000839,500$ EOY retained earnings $$4,239,310$ $$1,620,556$ Common stock $1,106,895167,900$ APIC $824,155209,875$ Retained earnings $4,239,3101,620,556$ $$11,143,209$ $$3,422,123$

a$.$ Disaggregate and document the activity for the $100\%$ Acquisition Accounting Premium $($AAP$),$ the controlling interest AAP and the noncontrolling interest AAP.

Do not enter any answers as negative numbers in part a$.$

Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized Unamortized AAP $2007$ AAP $2008$ AAP $2009$ AAP $2010$ AAP $2011$ AAP $2012$ AAP $2013$ AAP $1/1/2007$ Amortization $1/1/2008$ Amortization $1/1/2009$ Amortization $1/1/2010$ Amortization $1/1/2011$ Amortization $1/1/2012$ Amortization $1/1/2013$ Amortization $1/1/2014$ Patent Goodwill Controlling Interest: Patent Goodwill Noncontrolling Interest: Patent Goodwill

b$.$ Calculate and organize the profits and losses on intercompany transactions and balances.

Downstream Upstream Intercompany profit in inventory on $1/1/13$ Intercompany profit in inventory on $12/31/13$

c$.$ Compute the pre$-$consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary.

Round your answers to the nearest whole number.

Use a negative sign with your answer to indicate a reduction to net income.

Equity investment at $1/1/13$: Common stock APIC Retained earnings Less: Equity investment at $12/31/13$: Common stock APIC Retained earnings Unamortized AAP Less:

d$.$Reconstruct the activity in the parent's pre$-$consolidation Equity Investment T$-$account for the year of consolidation.

Round your answers to the nearest whole number.

Equity Investment

Balance at $1/1/13$ Answer Answer

Net income Answer Answer Dividends

Answer Answer Answer AAP amortization

Answer Answer Answer

Balance at $12/31/13$ Answer Answer

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

Round your answers to the nearest whole number.

Use a negative sign with your answer to indicate a reduction to net income.

Noncontrolling interest at $1/1/13$: Common stock APIC Retained earnings Less: Noncontrolling interest at $12/31/13$: Common stock APIC Retained earnings Less:

f$.$ Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income.

Round your answers to the nearest whole number.

Use a negative sign with your answer to indicate a reduction to net income.

Consolidated: Parent's stand$-$alone net income Subsidiary's stand$-$alone net income Plus: Less: $100\%$ AAP amortization Subsidiary's adjusted stand$-$alone net income Consolidated net income Parent: Parent's stand$-$a

Answer & Explanation Solved by verified expert

See Answer