Question

Consolidation on date of acquisition - Equity method with noncontrolling interest and AAP Assume that a parent company acquires an 80% interest in its subsidiary for a purchase price of $620,800. 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 the parent believes is worth $50,000 more than its book value, an: unrecorded Patent that the parent valued at $100,000, and Goodwill of $150,000, 80% of which is allocated to the parent. The parent and the subsidiary report the balance sheets on the acquisition date in b. below: a. Prepare the consolidation entries on the acquisition date. Consolidation Worksheet Debit Credit Description [E] Common stock APIC Equity investment [A] PPE, net Patent Equity investment b. Prepare the consolidation spreadsheet on the acquisition date Elimination Entries Parent Subsidiary Cash $460,378 $107,576 Accounts receivable 362,880 165,648 Inventory 49,990 212,772 620,800 Equity investment Goodwill Property, plant and equipment 2,645,622 393,652 (PPE), net $4,639,670 $879,648 Total Assets Current liabilities $407,390 $165,648 Long-term liabilities 2,000,000 238,000 463,523 Common stock 47,600 APIC 344,453 59,500 344,453 59,500 APIC [EI 1,424,304 368,900 Retained earnings $4,639,670 $879,648 Total Liabilities and Equity

Answer 1

Schedule of Calculation of Parent Share and Non-Controlling Interest (Amount in $)
Descriptions	Parent	Non-Controlling Interest	Total
	80%	20%	100%
Purchase price	$    620,800	$         155,200	$    776,000
Book Value
Common Stock	$      38,080	$             9,520	$      47,600
APIC	$      47,600	$           11,900	$      59,500
Retained Earnings	$    295,120	$           73,780	$    368,900
Total Book Value	$    380,800	$           95,200	$    476,000
Excess Value ( Purchase Price – Total Book Value)	$    240,000	$           60,000	$    300,000
Excess Value Assigned to:
PPE, Net (Building)	$      40,000	$           10,000	$      50,000
Patent	$      80,000	$           20,000	$    100,000
Goodwill	$    120,000	$           30,000	$    150,000
	$    240,000	$           60,000	$    300,000

a. Prepare the consolidation entries on the acquisition date
Consolidation Worksheet
	Description	Debit	Credit
( E)	Common Stock	$         47,600
	APIC	$         59,500
	Retained Earnings	$       368,900
	Equity Investment		$      380,800
	Non-Controlling Interest		$        95,200
(A)	PPE, Net	$         50,000
	Patent	$       100,000
	Goodwill	$       150,000
	Equity Investment		$      240,000
	Non-Controlling Interest		$        60,000

b. Prepare the consolidated spread sheet on the acquisition date
			Elimination Entries
	Parent	Subsidiary		Dr	Cr		Consolidation
Cash	$         460,378	$ 107,576					$      567,954
Account receivable	$         362,880	$ 165,648					$      528,528
Inventory	$         549,990	$ 212,772					$      762,762
Equity Investment	$         620,800				$ 380,800	( E)	$                -
					$ 240,000	( A)
Patent			(A)	$ 100,000			$      100,000
Goodwill			(A)	$ 150,000			$      150,000
Property, Plant & Equipment (PPE), net	$      2,645,622	$ 393,652	(A)	$ 250,000			$   3,289,274
	$      4,639,670	$ 879,648		$ 500,000	$ 620,800		$   5,398,518
Current Liabilities	$         407,390	$ 165,648					$      573,038
Long-term Liabilities	$      2,000,000	$ 238,000					$   2,238,000
Common Stock	$         463,523	$   47,600	( E)	$   47,600			$      463,523
APIC	$         344,453	$   59,500	( E)	$   59,500			$      344,453
Non-Controlling Interest					$   95,200	( E)	$      155,200
					$   60,000	(A)
Retained Earnings	$      1,424,304	$ 368,900	( E)	$ 368,900			$   1,424,304
	$      4,639,670	$ 879,648		$ 476,000	$ 155,200		$   5,198,518