Question

Consolidation on date of acquisition - Equity method with noncontrolling interest and AAP Assume a parent company acquires a 75% interest in its subsidiary for a purchase price of $924,000. The excess of the total fair value of the controlling and noncontrolling Interests over the book value of the subsidiary's Stockholders' Equity is assigned to a building in PPE, net) that is worth $88,000 more than its book value, an unrecorded patent with a fair value of $144,000, and Goodwill of $248,000. There is no control premium, so goodwill is assigned proportionally to the controlling and noncontrolling interests. The parent and the subsidiary report the following pre-consolidation balance sheets on the acquisition date: Parent Subsidiary Parent Subsidiary Cash 5720,000 $160,000 Current liabilities 640,000 5252.000 Accounts receivable 625,600 264.000 Long-term liabilities 2.400,000 400.000 Inventory 880,000 340.000 Common stock 720,000 72.000 Equity investment 924,000 APIC 560,000 90.000 Property, plant and equipment(PPE), net 3.200,000 640,000 Retained earnings 2029.600 584,000 Total assets 56,349.600 1.404,000 Total liabilities and equity 56.349,600 $1,404.000 a. Prepare the consolidation entries on the acquisition date Consolidation Worksheet Description Debit Credit [E] common stock APIC Equity investment TAJ PPE.net Patent Equity investment

Answer 1

Consideration paid (75%)		924,000
Non-controlling interest (25%)		308,000
Total fair value of subsidiary		1,232,000
Less: Book value of subsidiary
Common stock	72,000
APIC	96,000
Retained earnings	584,000	752,000
Fair value in excess of books value		480,000
Excess fair value allocated to:
Undervalued building		88,000
Unrecorded patent		144,000
Goodwill		248,000
Balance		0

a. Consolidation worksheet:

[E]	Common Stock	72,000
	APIC	96,000
	Retained earnings	584,000
	Equity investment in subsidiary		564,000
	Non-controlling interest		188,000
[A]	PPE net	88,000
	Patent	144,000
	Goodwill	248,00
	Equity investment in subsidiary		360,000
	Non-controlling interest		120,000

	Parent	Subsidiary		Dr.	Cr.		Consolidated
Cash	720,000	160,000					880,000
Accounts receivables	625,600	264,000					889,600
Inventory	880,000	340,000					1,220,000
Equity investment	924,000				564,000	[E]	0
					360,000	[A]
PPE net	3,200,000	640,000	[A]	88,000			3,928,000
Patent			[A]	144,000			144,000
Goodwill			[A]	248,000			248,000
Total Assets	6,349,600	1,404,000					7,309,600
Current Liabilities	640,000	252,000					892,000
Long term liabilities	2,400,000	400,000					2,800,000
Common stock	720,000	72,000	[E]	72,000			720,000
APIC	560,000	96,000	[E]	96,000			560,000
NCI in subsidiary					188,000	[E]	308,000
					120,000	[E]
Retained earnings	2,029,600	584,000	[E]	584,000			2,029,600
Total liabilities and equities	6,349,600	1,404,000					7,309,600