Question

On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $1,107,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,150,000 and Retained Earnings of $57,500. The acquisition-date fair value of the 10 percent noncontrolling interest was $123,000. QuickPort attributed the $22,500 excess of NetSpeed's fair value over book value to a database with a five-year remaining life.

During the next two years, NetSpeed reported the following:

	Net Income			Dividends Declared
2017	$	31,500		$	4,500
2018		45,000			4,500

On July 1, 2017, QuickPort sold communication equipment to NetSpeed for $28,500. The equipment originally cost $32,500 and had accumulated depreciation of $5,500 and an estimated remaining life of three years at the date of the intra-entity transfer.

1)Compute the equity method balance in QuickPort's Investment in NetSpeed, Inc., account as of December 31, 2018.

2)Prepare the worksheet adjustments for the December 31, 2018, consolidation of QuickPort and NetSpeed.

Answer 1

1	Equity method balance in QuickPort's Investment in Net Speed, Inc.
	Cash paid for acquisition-90% stock	$1,107,000
	Add: Income from NetSpeed for 2017	$24,300
	Less: Dividend for 2017-90%	$4,050
	Investment in NetSpeed Inc. 1/1/2018	$1,127,250
	Add: Income from NetSpeed for 2018	$36,450
	Less: Dividend for 2018-90%	$4,050
	Investment in NetSpeed Inc. 31/12/2018	$1,159,650
	Income from subsidiary 2017
	Net income	$31,500
	Less: Amortization of database (22500/5)	$4,500
	Net adjusted income	$27,000
	90%-Quickport	$24,300
	10%-NCI	$2,700
	Income from subsidiary 2018
	Net income	$45,000
	Less: Amortization of database (22500/5)	$4,500
	Net adjusted income	$40,500
	90%-Quickport	$36,450
	10%-NCI	$4,050
2	Worksheet Adjustment for December 31, 2018
1	Common Stock	$1,150,000
	Retained Earnings	$80,000
	Investment in NetSpeed Inc.		$1,104,750
	Non-controlling interest		$125,250
2	Database	$22,500
	Investment in NetSpeed Inc.		$22,500
3	Amortization expenses	$4,500
	Database		$4,500
4	Income from Netspeed Inc.	$36,450
	Investment in Net Speed Inc.		$36,450
5	Investment in NetSpeed Inc.	$4,050
	Dividend receivable		$4,050
6	Gain on sale in equipment	$1,500
	Communication Equipment	$4,000
	Accumulated Depreciation-equipment		$4,750
	Depreciation-equipment		$500
	Cost of communication equipment sold	$32,500
	Less: Accumulated depreciation	($5,500)
	Book value of equipment	$27,000
	Sales price of Equipment	$28,500
	Gain on Sale	$1,500
	In the book of Quickport
	Accumulated Depreciation	$5,500
	Cash	$28,500
	Gain on sale of equipment		$1,500
	Communication Equipment		$32,500
	In the books of NetSpeed Inc.
	Communication Equipment	$28,500
	Cash		$28,500
	Depreciation-equipment	$4,750
	Accumulated Depreciation-equipment		$4,750
	Adjustment entry in Year 2017
	Gain on sale in equipment	$1,500
	Communication Equipment	$4,000
	Accumulated Depreciation-equipment		$5,250
	Depreciation-equipment		$250
	(depreciation charged for 6 months on excess amount is revesed)