Question

Assume that on 1/1/X0, a parent company acquires a 70% interest in its subsidiary for a price at $480,000 over book value. The excess is assigned as follows:

Asset	Fair Value	Useful Life
Patent	$320,000	8 years
Goodwill	160,000	Indefinite

70% of the goodwill is allocated to the parent.

Included in the attached Excel spreadsheet are the pre-consolidation financial statements for both the parent and the subsidiary.

Submission Requirements:

• Prepare the consolidated financial statements at 12/31/X6 by placing the appropriate entries in their respective debit/credit column cells.
• Indicate, in the blank column cell to the left of the debit and credit column cells if the entry is a [C], [E], [A], [D] or [I]entry.
• Use Excel formulas to derive the Consolidated column amounts and totals.
  • Using the “Home” key in Excel, go to the “Styles” area and highlight the [C], [E], [A], [D] or [I]entry cells in different shades.

Consolidation Entries Parent Subsidia Consolidated Income Statement: Sales Cost of Goods sold Gross proft Income (loss) from subsidiary Operatingexpenses Net Income Consolidated NI attrib to NCI Consolidated NI attrib to CI 6,000,000 2,000,000 (4,000,000) (1200,000) 800,000 2,000,000 112,000 1.500,000)(600,000) 200,000 612,000 Statement of Ret Earnings: BOY retained earnings Net income 1,978,000 970,000 612,000 200,000 190,000) (100,000) 2,400,000 1070,000 ECY retained earnings Balance Sheet: Cash 200,000 600,000 400,000 800,000 880,000 120,000 Accounts receivable Inventory Equity investment 1,400,000 PPE, net Patent Goodwil 2,000,000 1,200,000 5,000,000 2,600,000 Current liabilities Long-term liabilities Common stock APIC Retainedearnings Noncontrolling interest 00,000 200,000 ,100,000 600,000 600,000 280,000 400,000 450,000 2,400,000 1070,000

Answer 1

Consolidation Ent Parent Subsidia Dr Cr Consolidated Income Statement Sales Cost of goods sold Gross Profit Equity Income Operating expenses Net Income Consolidated NI attrib to NCI Consolidated NI attrib to Cl 2,000,000 (4,000,000)(1,200,000) 800,000 6,000,000 8,000,000 (5,200,000) 2,800,000 2,000,000 112,000 (1,500,000) 612,000 112,000 40,000 (600,000) D 200,000 (2,140,000) 660,000 (48,000) 612,000 48,000 Statement of Retained Earnings BOY Retained Earnings Net Income Dividends Ending retained earnings 1,978,000 612,000 (190,000) 2,400,000 970,000El 200,000 (100,000) 970,000 1,978,000 612,000 (190,000) 2,400,000 100,000 1,070,000

Working Notes: Calculation of Net Income Attributable to Noncontrollinq Interest Net Income of Subsidiary Less: Amortization of AAP Assets Adjusted Net Income of Subsidiary Net Income Attributable to NCI (160,000 x 30%) Equity Income (160,000 x 70%) 200,000 (40,000) 160,000 48,000 112,000 | Entry C to eliminate the equity income and income attributable to NCI Equity Investment NCI Equity Income Net Income Attributable to NCI Dividend (100,000 x 70%), (100,000 x 30%) Total 112,000 (70,000 42,000 48,000 (30,000) 18,000 Enty E to eliminate the subsidiary stockholding Equity Investment NCI Common Stock (280,000) APIC (450,000) BOY Retained Earnings (970,000) Total 70% 196,000 315,000 679,000 1,190,000 30% 84,000 135,000 291,000 510,000

Entry A to record the unamortized value of AAP Assets Equity Investment NCI Patent (80,000) Goodwill (160,000) Total 56,000 112,000 168,000 30% 24,000 48,000 72,000 Entry D to record the amortization expenses