On January 1, 2018, Access IT Company exchanged $1,080,000 for 45 percent of the outstanding voting...

On January 1, 2018, Access IT Company exchanged $1,080,000 for 45 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 $2,040,000.

In contractual agreements with the sole owner of the remaining 55 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	$	69,000		$	49,000
Investment in Net Connect		1,080,000
Capitalized software		989,000			164,000
Computer equipment		1,074,000			64,000
Communications equipment		924,000			344,000
Patent					199,000
Total assets	$	4,136,000		$	820,000
Long-term debt	$	(949,000	)	$	(624,000	)
Common stock-Access IT		(2,740,000	)
Common stock-Net Connect					(49,000	)
Retained earnings		(447,000	)		(147,000	)
Total liabilities and equity	$	(4,136,000	)	$	(820,000	)

Each of the above amounts represents a fair value at January 1, 2018. The fair value of the 55 percent of Net Connect shares not owned by Access IT was $1,320,000.

Prepare an acquisition-date consolidated worksheet for Access IT and its variable interest entity.

Expert Solution

ANSWER :

Consolidation worksheet (All figures in $ )

JAN 1, 2018

	Access IT	Net Connect	Debit	Credit	NCI	Consolidated Balances
Cash	69000	49000				118000
Investment in Net Connect	1080000			1080000
Capitalized Software	989000	164000				1153000
Computer equipment	1074000	64000				1138000
Communications equipment	924000	344000				1268000
Research and development asset
Patent		199000				199000
Goodwill			2204000			2204000
Total Assets	4136000	820000				6080000
Long term debt	-949000	-624000				-1573000
Common stock-Access IT	-2740000					-2740000
Common Stock Net Connect		-49000
Retained Earning	-447000	-147000				-447000
Non Controlling Interest					-1320000	-1320000
Total liabilties and equity	-4136000	-820000				-6080000

CALCULATION OF GOODWILL

Consideration Transferred	$ 1080000
Non Controlling Interest Fair Value	$ 1320000
Acquisition Date Fair Value	$ 2400000
Book Value ($ 49000 + $ 147000)	($ 196000)
Excess Fair Value Over Book Value	$ 2204000

Thus Goodwill is $ 2204000

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