Question

Consolidation on date of acquisition - Equity method with noncontrolling interest and AAP

Assume that a parent company acquires an 70% interest in its subsidiary for a purchase price of $1,078,000. 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 $100,000 more than its book value, an unrecorded patent that the parent valued at $200,000, and Goodwill of $300,000. 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	$920,000	$215,000		Current liabilities	$810,000	$330,000
Accounts receivable	782,000	330,000		Lont-term liabilities	4,000,000	500,000
Inventory	1,100,000	425,000		Common stock	920,000	90,000
Equity iinvestment	1,078,000			APIC	700,000	120,000
Property, plant, and equipment (PPE), net	5,400,000	800,000		Retained earnings	2,850,000	730,000
Total assets	$9,280,000	1,770,000		Total liabilities and equity	$9,280,000	$1,770,000

a. Prepare the consolidation entries on the acquisition date.

Consolidation Worksheet
Description		Debit	Credit
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerPPE, netPatentGoodwillEquity investmentCommon stockAPICRetained earningsNoncontrolling interest	Answer	Answer
	Equity investment	Answer	Answer
	AnswerPPE, netPatentGoodwillEquity investmentCommon stockAPICRetained earningsNoncontrolling interest	Answer	Answer
[A]	PPE, net	Answer	Answer
	Patent	Answer	Answer
	AnswerPPE, netPatentGoodwillEquity investmentCommon stockAPICRetained earningsNoncontrolling interest	Answer	Answer
	Equity investment	Answer	Answer
	AnswerPPE, netPatentGoodwillEquity investmentCommon stockAPICRetained earningsNoncontrolling interest	Answer	Answer

b. Prepare the consolidation spreadsheet on the acquisition date.

				Elimination Entries
	Parent	Subsidiary		Dr	Cr		Consolidated
Cash	$920,000	$215,000					$Answer
Accounts receivable	782,000	330,000					Answer
Inventory	1,100,000	425,000					Answer
Equity investment	1,078,000				Answer	Answer[C][E][A][D]	Answer
					Answer	Answer[C][E][A][D]
AnswerPPE, netPatentGoodwillEquity investmentCommon stockAPICRetained earningsNoncontrolling interest	5,400,000	800,000	Answer[C][E][A][D]	Answer			Answer
Patent			Answer[C][E][A][D]	Answer			Answer
Goodwill			Answer[C][E][A][D]	Answer			Answer
Total Assets	$9,280,000	$1,770,000					$Answer
Current liabilities	$810,000	$330,000					$Answer
Long-term liabilities	4,000,000	500,000					Answer
Common stock	920,000	90,000	Answer[C][E][A][D]	Answer			Answer
APIC	700,000	120,000	Answer[C][E][A][D]	Answer			Answer
AnswerPPE, netPatentGoodwillEquity investmentCommon stockAPICRetained earningsNoncontrolling interest					Answer	Answer[C][E][A][D]	Answer
					Answer	Answer[C][E][A][D]
Retained earnings	2,850,000	730,000	Answer[C][E][A][D]	Answer			Answer
Total Liabilities and Equity	$9,280,000	$1,770,000		Answer	Answer		$Answer

Answer 1