Question

Consolidation Working Paper, Noncontrolling Interest, Intercompany Inventory Transactions

Peninsula Industries and Seaport Company, an 85 percent owned subsidiary, engage in extensive intercompany transactions involving raw material,component parts,and completed products. Peninsula acquired its interest in Seaport several years ago, at a cost of $24,575,000. At that time, Seaport's book value was $1,500,000 and the fair value of the noncontrolling interest in Seaport was $2,925,000. The excess of acquisition cost over book value was attributed to previously unrecorded indefinite-lived intangibles, valued at $2,000,000, and to goodwill. As of January 1, 2019, the intangibles were impaired by $500,000 and the goodwill was impaired by $600,000. Impairment testing reveals no additional impairment of either asset in 2019. Intercompany sales for 2019 and the unconfirmed intercompany profits in the beginning and ending inventories of both companies are summarized below:

	Peninsula Industries	Seaport Company
Intercompany profit in inventory, January 1, 2019	100,000	60,000
Intercompany sales to affiliate	2,200,000	3,700,000
Intercompany profit in inventory, December 31, 2019	80,000	75,000

Prior to consolidation at December 31, 2019, the separate condensed trial balances of the two companies are as follows:

	Dr (Cr) Peninsula Industries	Dr (Cr) Seaport Company
Current assets	1,950,000	980,000
Investment in Seaport	26,600,500	------
Property, plant and equipment, net	85,810,000	5,130,000
Intangibles	4,315,000	-----
Liabilities	(106,355,000)	(2,100,000)
Capital stock	(3,000,000)	(1,200,000)
Retained earnings, January 1	(6,500,000)	(2,250,000)
Accumulated other comprehensive income, January 1	(200,000)	(50,000)
Dividends	1,000,000	400,000
Sales	(115,000,000)	(6,000,000)
Equity in net income of Seaport	(767,000)	------
Cost of goods sold	109,050,000	3,170,000
Operating expenses	4,150,000	1,930,000
Other comprehensive income	(45,000)	(10,000)
Equity in other comprehensive income of Seaport	(8,500)	-------
Totals	0	0

Required:

A. Prepare a schedule to calculate total goodwill for this acquisition and its allocation to the controlling and noncontrolling interests.

B. Prepare a schedule to show how equity in net income of Seaport for 2019 was computed, and to compute noncontrolling interest in net income for 2019.

C. Prepare a working paper consolidating the trial balances of Peninsula and Seaport for 2019. Label your eliminating entries (C), (I), (E), (R), and (N). Show all your calculations for each transactions on how you got your answer.

Answer 1

Question a.
	Control Interest	Non-Controlling Interest
Cost of Acquisition/Fair Value	$         3,000,000.00	$       275,000.00
Share of Book Value of Controlled interest	$         1,800,000.00	$       200,000.00
Excess of Cost over Book Value	$         1,200,000.00	$          75,000.00
Attributed to:
Indefinite Intangibles	$            500,000.00
Goodwill	$            700,000.00	$          75,000.00
Total Intangible assets	$         1,200,000.00	$          75,000.00
Impairment Cost:
Indefinite Intangibles	$          (200,000.00)
Goodwill	$          (300,000.00)	$                         -
Net Value of Intangibles
Indefinite Intangibles	$            300,000.00	$                         -
Goodwill	$            400,000.00	$          75,000.00
Carrying amont	$            700,000.00	$          75,000.00
Question b.
Equity Net Income of Sea Port
	Control Interest	Non-Controlling Interest	Total
Sales	$         5,400,000.00	$       600,000.00	$     6,000,000.00
Cost of Goods Sold	$      (2,853,000.00)	$     (317,000.00)	$ (3,170,000.00)
Other Operating Expenses	$      (1,737,000.00)	$     (193,000.00)	$ (1,930,000.00)
Net Income	$            810,000.00	$          90,000.00	$        900,000.00
Other Comprehensive Income	$                 9,000.00	$            1,000.00	$           10,000.00
Total Income	$            819,000.00	$          91,000.00	$        910,000.00
Less: Intercompany Profit on Inventory:
Peninsula (80,000 x 90%)	$            (72,000.00)
Seaport (75,000 x 90%)	$            (67,500.00)
Equity Income in Seaport)	$            679,500.00
Question C.
	Peninsula	Seaport	Debit	Credit	Consolidated
Current Assets	$         1,950,000.00	$       980,000.00			$      2,930,000.00
Investment in Seaport	$         4,192,000.00			$ (4,192,000.00)	$                           -
Property Plant and Equipment, Net	$         5,810,000.00	$    5,130,000.00			$    10,940,000.00
Intangibles	$         4,315,000.00				$      4,315,000.00
Liabilities	$      (4,900,000.00)	$ (2,100,000.00)			$    (7,000,000.00)
Capital Stock	$      (3,000,000.00)	$ (1,200,000.00)	$     1,200,000.00		$    (3,000,000.00)
Retained Earnings, Jan 1	$      (6,500,000.00)	$ (2,250,000.00)	$     2,250,000.00		$    (6,500,000.00)
Accumulated Other comprehensive Income	$          (200,000.00)	$       (50,000.00)	$           50,000.00		$       (200,000.00)
Dividend	$         1,000,000.00	$       400,000.00		$       (40,000.00)	$      1,360,000.00
Non Controlling Interest				$       (91,000.00)	$          (91,000.00)
Sales	$    (15,000,000.00)	$ (6,000,000.00)			$ (21,000,000.00)
Equity in net income of Seaport	$          (813,000.00)	$                         -	$        813,000.00		$                           -
Cost of Goods sold	$         9,050,000.00	$    3,170,000.00			$    12,220,000.00
Other Operating Expenses	$         4,150,000.00	$    1,930,000.00			$      6,080,000.00
Other Comprehensive Income	$            (45,000.00)	$       (10,000.00)	$           10,000.00		$          (45,000.00)
Equity in Other comprehensive income of Seaport	$               (9,000.00)				$            (9,000.00)
Total