Question

Problem 6-26 (LO 6-2)

On January 1, 2018, Access IT Company exchanged $930,000 for 30 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $2,570,000.

In contractual agreements with the sole owner of the remaining 70 percent of Net Connect, Access IT was granted (1) various decision-making rights over Net Connect's operating decisions and (2) special service purchase provisions at below-market rates. As a result of these contractual agreements, Access IT established itself as the primary beneficiary of Net Connect. Immediately after the purchase, Access IT and Net Connect presented the following balance sheets:

	Access IT				Net Connect
Cash	$	54,000			$	34,000
Investment in Net Connect		930,000
Capitalized software		974,000				149,000
Computer equipment		1,059,000				49,000
Communications equipment		909,000				329,000
Patent						184,000
Total assets	$	3,926,000			$	745,000
Long-term debt	$	(934,000	)		$	(609,000	)
Common stock-Access IT		(2,590,000	)
Common stock-Net Connect						(34,000	)
Retained earnings		(402,000	)			(102,000	)
Total liabilities and equity	$	(3,926,000	)		$	(745,000	)

Each of the above amounts represents a fair value at January 1, 2018. The fair value of the 70 percent of Net Connect shares not owned by Access IT was $2,170,000.

Prepare an acquisition-date consolidated worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the NCI and Consolidated Totals columns should be entered with a minus sign.)

X Answer is not complete. Consolidated NCI $ Balances 88,000 07 1,123,000 1,108,000 1,238,000 ACCESS IT COMPANY AND NET CONNECT Consolidation Worksheet January 1, 2018 Consolidation Entries Net Access IT Connect Debit Credit $ 54,000 $ 34,000 930,000 930,000 974,000 149,000 1,059,000 49,000 909,000 329,000 2,570,000 184,000 394,000 $ 3,926,000 $ 745,000 $ (934,000) $ (609,000) (2,590,000) (34,000) (402,000) (102,000) 30,600 X 2,074,800 43.926.000) $ (745,000) $ 2,994,600 $ 3,004,800 2,570,000 Cash Investment in NetConnect Capitalized software Computer equipment Communications equipment Research and development asset Patent Goodwill Total assets Long-term debt Common stock-Access IT Common stock-NetConnect Retained earnings Noncontrolling interest Total liabilities and equity 184,000 394,000 $ 6,705,000 $ (1,543,000) (2,590,000) 0 (402,000) 2,170,000 X $ (2,365,000) (34,000) (71,400) (2,074,800)

Answer 1

	Access IT	Net Connect	Debit	Credit	NCI	Consolidated Balance
Cash	54,000	34,000				88,000
Investment in NetConnect	930,000			930,000		0
Capitalized software	974,000	149,000				1,123,000
Computer equipment	1,059,000	49,000				1,108,000
Communications equipment	909,000	329,000				1,238,000
Research and  development asset			$ 2,570,000.00			2,570,000
Patent	0	184,000				184,000
Goodwill			$    394,000.00			394,000
Total assets	3,926,000	745,000				6,705,000
Long-term debt	-934,000	-609,000				-1,543,000
Common stock-Access IT	-2,590,000	0				-2,590,000
Common stock-NetConnect	0	-34,000	10,200		-23800	0
Retained earnings	-402,000	-102,000	30,600		-71400	-402,000
Noncontrolling interest				2,074,800	-2,074,800	-2,170,000
Total liabilities and equity	-3,926,000	-745,000	3,004,800	3,004,800	-2,170,000	-6,705,000
Consideration transferred	$    930,000.00
Noncontrolling interest fair value	$ 2,170,000.00
Acquisition-date fair value	$ 3,100,000.00
Book value	$  (136,000.00)
Excess fair over book value	$ 2,964,000.00
Research and development asset	$ 2,570,000.00
Goodwill	$    394,000.00

Answer 2

Consideration Transferred + Noncontrolling interest fair value - book value - research & development asset = GOODWILL

930,000 + 2,170,000 - 136,000 - 2,570,000 = 394,000

Accounts	Access IT	Net Connect	Debit	Credit	NCI	Consolidated Balances
Cash	54,000	34,000				88,000
Investment in NetConnect	930,000			930,000		0
Capitalized software	974,000	149,000				1,123,000
Computer equipment	1,059,000	49,000				1,108,000
Communications equipment	909,000	329,000				1,238,000
Research and development asset			2,570,000			2,570,000
Patent		184,000				184,000
Unpatented Technology			394,000			394,000
Total Assets	3,926,000	745,000				6,705,000
Long-term debt	(934,000)	(609,000)				(1,543,000)
Common stock--AccessIT	(2,590,000)					(2,590,000)
Common stock--NetConnect		(34,000)	34,000			0
Retained Earnings	(402,000)	(102,000)	102,000			(402,000)
NCI				2,170,000	2,170,000	(2,170,000)
Total Liabilities and Equity	(3,926,000)	(745,000)				(6,705,000)