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Consolidation subsequent to date of acquisition - Equity method with noncontrolling interest and AAP

Assume, on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $780,000 over the book value of the subsidiarys Stockholders Equity on the acquisition date. The parent assigned the excess fair value to the following [A] assets:

[A] Asset	Initial Fair Value	Useful Life (years)
Property, plant and equipment (PPE), net	$312,000	20
Patent	130,000	10
Customer list	78,000	10
Goodwill	260,000	Indefinite
	$780,000

80% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following financial statements at December 31, 2019:

	Parent	Subsidiary			Parent	Subsidiary
Income statement:				Balance sheet:
Sales	$10,790,000	$1,560,000		Cash	$520,000	$370,500
Cost of goods sold	(8,190,000)	(780,000)		Accounts receivable	780,000	325,000
Gross profit	2,600,000	780,000		Inventory	1,170,000	429,000
Income (loss) from subsidiary	230,880			Equity investment	1,490,320
Operating expenses	(2,080,000)	(455,000)		Property, plant and equipment (PPE), net	2,600,000	1,170,000
Net income	$750,880	$325,000			$6,560,320	$2,294,500
Statement of retained earnings:
BOY retained earnings	$713,440	$760,500		Liabilities and stockholders equity
Net income	750,880	325,000		Current liabilities	$1,170,000	$325,000
Dividends	(234,000)	(65,000)		Long-term liabilities	2,600,000	741,000
EOY retained earnings	$1,230,320	$1,020,500		Common stock	520,000	91,000
				APIC	1,040,000	117,000
				Retained earnings	1,230,320	1,020,500
					$6,560,320	$2,294,500

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

Note: Do not use negative signs with any of your answers below.

	Unamortized		Unamortized		Unamortized		Unamortized		Unamortized
	AAP	2016	AAP	2017	AAP	2018	AAP	2019	AAP
	1/1/2016	Amortization	12/31/2016	Amortization	12/31/2017	Amortization	12/31/2018	Amortization	12/31/2019
100% AAPProperty, plant and equipment (PPE), net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Patent	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Customer list	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Parent (80%):
Property, plant and equipment (PPE), net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Patent	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Customer list	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Subsidiary (20%):
Property, plant and equipment (PPE), net	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Patent	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Customer list	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer
	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer	Answer

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

		Downstream	Upstream
Jan. 1, 2019	AnswerNo intercompany transactionsIntercompany transaction	Answer	Answer
Dec. 31, 2019	AnswerNo intercompany transactionsIntercompany transaction	Answer	Answer

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

Round answers to the nearest whole number.

Equity investment at 1/1/19:
80% x book value of the net assets of subsidiary	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
	Answer
Equity investment at 12/31/19:
80% x book value of the net assets of subsidiary	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
	Answer

d. Reconstruct the activity in the parents pre-consolidation Equity Investment T-account for the year of consolidation.

Round answers to the nearest whole number.

Equity Investment
Balance at 1/1/19	Answer	Answer
AnswerNet incomeDividendsAAP amortization	Answer	Answer	Dividends
	Answer	Answer	AnswerNet incomeDividendsAAP amortization
Balance at 12/31/19	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 answers to the nearest whole number.

Noncontrolling interest at 1/1/19:
20% of book value of the net assets of subsidiary	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
NCI	Answer
Noncontrolling interest at 12/31/19:
20% of book value of the net assets of subsidiary	Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP	Answer
NCI	Answer

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

• Round answers to the nearest whole number.
• Use negative signs with answers that reduce net income.

Consolidated:
Parent's stand-alone net income		Answer
Subsidiary's stand-alone net income		Answer
Answer100% AAP amortization80% AAP amortization20% AAP amortization		Answer
Consolidated net income		Answer
Parent:
Parent's stand-alone net income		Answer
80% of subsidiary's stand-alone net income		Answer
Answer100% AAP amortization80% AAP amortization20% AAP amortization		Answer
Consolidated net income attributable to the controlling interest		Answer
Subsidiary:
20% of subsidiary's stand-alone net income		Answer
Answer100% AAP amortization80% AAP amortization20% AAP amortization	Answer
Consolidated net income attributable to the noncontrolling interest		Answer

g. Complete the consolidating entries according to the C-E-A-D-I sequence.

Consolidation Worksheet
Description		Debit	Credit
[C]	Equity income	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Dividends	Answer	Answer
	Equity investment	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Equity investment	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
[A]	Property, plant and equipment (PPE), net	Answer	Answer
	Patent	Answer	Answer
	Customer list	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Equity investment	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
[D]	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	AnswerProperty, plant and equipment (PPE), netGoodwillOperating expensesEquity incomeConsolidated net income attributable to noncontrolling interestEquity investmentRetained earningsNoncontrolling interest	Answer	Answer
	Patent	Answer	Answer
	Customer list	Answer	Answer

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