Question

On January 1, 2020, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $855,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $860,000 and Retained Earnings of $43,000. The acquisition-date fair value of the 10 percent noncontrolling interest was $95,000. QuickPort attributed the $47,000 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
2020	$	62,700		$	6,300
2021		90,100			6,300

On July 1, 2020, QuickPort sold communication equipment to NetSpeed for $33,100. The equipment originally cost $37,800 and had accumulated depreciation of $7,100 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, 2021.

2. Prepare the worksheet adjustments for the December 31, 2021, consolidation of QuickPort and NetSpeed.

   
   

Investment in NetSpeed, Inc., 12/31/21

1 Prepare entry *TA 2 Prepare entry S 3 Prepare entry A 4 Prepare entry I 5 Prepare entry D 6 Prepare Entry E 7 Prepare entry ED

Answer 1

Investment Account:

Consideration paid (fair value)		$855,000
Net Income for 2020	$62,700
Database distriobution (47,000/5)	(9,400)
Netspeed's adjusted income	$53,300
Quickport ownership percentage	90%
Quickport share of net income	$47,970
Gain on equipment transfer [33,100-(37,800-7,100)	($2,400)
Depreciation adjustment (6 Months) [2,400/3year]=800/2=	400
Equity in earnings of Netspeed		$45,970
Quickport share of Netspeed's dividends (90% * 6,300)		($5,670)
Balance 12/31/2020		$895,300
Netspeed's reported net income for 2021	$90,100
Database amortization	($9,400)
Netspeed's adjusted 2021 net income	$80,700
Quickport's ownership percentage	90%
Quickpoet's share of Net speed net income	$72,630
Depreciation adjustment	$800
Equity in earnings of Netspeed company 2021		$73,430
Quickport's share of Netspeed's dividend (90% * 6,300)		($5,670)
Balance 12/31/2021		$963,060

Transaction	Accounts	Debit($)	Credit($)
1	Equipment (37,800 - 33,100)	4,700
	Investment in Netspeed (2,400-400)	2,000
	Accumulated depreciation		6,700
2	Common stock-Netspeed	860,000
	Retained eanings-Netspeed [43,000+(62,700-6,300)]	99,400
	Investment in Netspeed		863,460
	Noncontrolling interest		95,940
3	Database (47,000-9,400)	37,600
	Investment in Netspeed		33,840
	Noncontrolling interest		3,760
4	Equity in earnings of Netspeed	73,430
	Investment in Netspeed		73,430
5	Investment in Netspeed	5,670
	Dividends declared		5,670
6	Amortization expense	9,400
	Database		9,400
7	Accumulated depreciation	800
	Depreciation expense		800