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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 $480,000 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 $ 160,000 10 years Customer list 96,000 5 years Goodwill 224,000 Indefinite $ 480,000 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 1,520,000 Assets Cost of goods sold (4,000,000) (960,000) Cash $ 400,000 $ 80,000 Gross profit 1,760,000 560,000 Accounts receivable 752,000 200,000 Equity income 112,320 Inventory 960,000 440,000 Operating expenses (1,120,000) (400,000) Equity investment 921,600 Net income 752,320 160,000 Property, plant and equipment, net 2,240,000 720,000 Statement of retained earnings: $ 5,273,600 $ 1,440,000 Beginning retained earnings: 1,401,280 400,000 Liabilities and stockholders' equity Net income 752,320 160,000 Accrued liabilities 800,000 320,000 Dividends (160,000) (40,000) Long-term liabilities 1,600,000 400,000 Ending retained earnings $1,993,600 $ 520,000 Common stock 160,000 80,000 APIC 720,000 120,000 Retained earnings 1,993,600 520,000 $ 5,273,600 $1,440,000a. 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 AAP 2015 AAP 2016 AAP 2017 AAP 2018 AAP 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 $ 160,000 $ 16000 ~ $ 144000 ~ $ 16000 ~ $ 128000 ~ $ 16000 ~ $ 112000 ~ $ 16000 ~ $ 96000 ~ $ 16000 ~ $ 80000 Customer list 96,000 19200 76800 19200 57600 19200 38400 19200 19200 19200 OV Goodwill 224,000 OV 224000 OV 224000 OV 224000 OV 224000 OV 224000 $480,000 $ 35200 v $ 444800 ~ $ 35200 $ 409600 ~ $ 35200 $ 374400 ~ $ 35200 ~ $ 339200 ~ $ 35200 ~ $ 304000 Parent (p%): PPE, net $ 144000 ~ $ 14400 ~ $ 129600 ~ $ 14400 ~ $ 115200 v $ 14400 ~ $ 100800 ~ $ 14400 ~ $ 86400 ~ $ 14400 ~ $ 72000 Customer list 86400 17280 69120 17280 51840 17280 34560 17280 17280 17280 OV Goodwill 201600 201600 OV 201600 201600 OV 201600 201600 $ 432000 ~ $ 31680 ~ $ 400320 ~ $ 31680 ~ $ 368640 ~ $ 31680 ~ $ 336960 ~ $ 31680 ~ $ 305280 ~ $ 31680 * $ 273600 Subsidiary (nci%): PPE, net $ 16000 ~ $ 1600 ~ $ 14400 ~ $ 1600 ~ $ 12800 ~ $ 1600 - $ 11200 ~ $ 1600 ~ $ 9600 ~ $ 1600 ~ $ 8000 Customer list 9600 1920 7680 1920 5760 1920 3840 1920 1920 1920 0 Goodwill 22400 OV 22400 OV 22400 OV 22400 OV 22400 OV 22400 $ 48000 ~ $ 3520 v $ 44480 ~ $ 3520 ~ $ 40960 ~ $ 3520 v $ 37440 ~ $ 3520 v $ 33920 ~ $ 3520 v $ 30400 b. Calculate and organize the profits and losses on intercompany transactions and balances. (No intercompany transactions)c. Compute the loreconsolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Equity investment account at 1I1f19 p% book value of subsidiary's net assets 25 x Unamortized p% AAP 305280 v 914400 3: Equity investment account at 12131f19 p% book value of subsidiary's net assets $ 304000 at Unamortized p% AAP 273600 v 30400 X d. Reconstruct the activity in the parent's preconsolidation Equity Investment Taccount for the year of consolidation. Equity Investment 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 $ 59600 x Unamortized nci% AAP 42000 x 101600 x Noncontrolling interests at 12/31/19 nci% book value of subsidiary's net assets $ 69200 x Unamortized nci% AAP 40000 x 109200 x 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 $ 320000 x Subsidiary's stand-alone net income 112000 x 100% AAP amortization -20000 x Consolidated net income $ 412000 x Parent's stand-alone net income $ 320000 x p% of subsidiary's stand-alone net income 100800 x p% AAP amortization 18000 x Consolidated net income attributable to the controlling interest $ 402800 x nci% of subsidiary's stand-alone net income $ 11200 x nci% AAP amortization -2000 x Activ Consolidated net income attributable to the noncontrolling interest $ 9200 x Go tog. 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 $1,520,000 $ 7280000 Cost of Goods sold (4,000,000) (960,000) -4960000 Gross profit 1,760,000 560,000 2320000 Income (loss) from subsidiary 112,320 [C] 82800 x 195120 x Operating expenses (1,120,000) (400,000) [D] 400000 x -1120000 x Net Income $752,320 $160,000 1395120 x Consolidated NI atrib to NCI [C] 9200 x 9200 x Consolidated NI attrib to CI $ 1404320 x Statement of Ret Earnings: BOY retained earnings $1,401,280 $400,000 [E] 468000 x $ 1754480 x Net income 752,320 160,000 912320 x Dividends (160,000) (40,000) 16000 x [C] -184000 x EOY retained earnings $1,993,600 $520,000 $ 2482800 xBalance Sheet: Cash $400,000 $80,000 $ 480000 V Accounts receivable 752,000 200,000 952000 V Inventory 960,000 440,000 1356000 x Equity investment 921,600 7600 x [C] 16000 x [E] 378000 x [A] PPE, net 2,240,000 720,000 [A] 136000 x 0 * [D] 0 X Customer List [A] 56000 x 0 x [D] OV Goodwill [A] 200000 x 0 X $5,273,600 $1,440,000 $ 0 X Current liabilities $800,000 $320,000 0 X Long-term liabilities 1,600,000 400,000 0 X Common stock 160,000 80,000 [E] 0 X 0 X APIC 720,000 120,000 [E] 0 x 0 X Retained earnings 1,993,600 520,000 O X Noncontrolling interest 0 * [C] 0 X 0 * [E] 0 x [A] $5,273,600 $1,440,000 $ 0 * $ 0 x $ 0 X

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