Question

On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $999,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,050,000 and Retained Earnings of $52,500. The acquisition-date fair value of the 10 percent noncontrolling interest was $111,000. QuickPort attributed the $7,500 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 $ 10,500 $ 1,500 2018 15,000 1,500 On July 1, 2017, QuickPort sold communication equipment to NetSpeed for $10,500. The equipment originally cost $21,000 and had accumulated depreciation of $12,000 and an estimated remaining life of three years at the date of the intra-entity transfer. Compute the equity method balance in QuickPort's Investment in NetSpeed, Inc., account as

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

Answer 1

ANSWER
Consideration Paid (Fair Value)			999,000
Net Income for 2017		10,500
Less: Data Base Amortization (Excess of fair value to book value)	7,500/5	(1,500)
Adjusted net Income		9,000
Ownership 90%		90%
Quick port share of income		8,100
Less: Gain on Equipment transferred deferral	10,500-(21,000-12,000)	(1,500)
Add: Depreciation adjustment (6 month)	1,500/3year=500/2	250
Equity earning of Net speed			6,850
Less: Dividend Share 90%	1,500*90%		(1,350)
Balance on 31/12/17			1,004,500
Net Income for 2018		15,000
Less: Data Base Amortization (Excess of fair value to book value)	7,500/5	(1,500)
Adjusted net Income		13,500
Ownership %		90%
Quick port share of income		12,150
Add: Depreciation	1,500/3	500
Equity earning of Net speed			12,650
Less: Dividend Share 90%	1,500*90%		(1,350)
Balance on 31/12/18			1,015,800

Hence, Balance on 31/12/18 is 1,015,800 as per equity method.

No	Transaction	Accounts	Debit	Credit
1	1	Equipment ( 21,000 - 10,500)	10,500
		Investment in NetSpeed (1,500-250)	1,250
		Accumulated depreciation		11,750
2	2	Common Stock	1050000
		Retained Earnings (52,500+10,500-1,500)	61500
		Investment in NetSpeed Inc.		1,000,350
		Non-controlling interest		111,150
3	3	Database (7,500-1,500)	6,000
		Investment in NetSpeed		5,400
		Noncontrolling interest		600
4	4	Equity in earnings of NetSpeed	12,650
		Investment in NetSpeed		12,650
5	5	Investment in NetSpeed	1,350
		Dividends declared		1,350
6	6	Amortization expense	1,500
		Database		1,500
7	7	Accumulated depreciation	500
		Depreciation expense		500

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