Question

In January 1, 2015, Springfield Company acquired an 80% interest in Lincoln Company for a purchase price that was $350,000 over the book value of Lincoln’s Stockholders’ Equity on the acquisition date. Spring uses the equity method to account for its investment in Lincoln. Springfield assigned the acquisition-date AAP as follows:

AAP Items	Initial Fair Value	Useful Life (years)
Patent	200,000	10
Goodwill	150,000	Indefinite
	$350,000

Lincoln sells inventory to Springfield (upstream) which includes that inventory in products that it (Springfield), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2020 and 2021:

	2020	2021
Transfer price for inventory sale	$ 305,500	$ 356,500
Cost of goods sold	(269,500)	(316,500)
Gross profit	$   36,000	$   40,000
% inventory remaining	25%	35%
Gross profit deferred	$     9,000	$   14,000
EOY Receivable/Payable	$   55,000	$   65,000

The inventory not remaining at the end of the year has been sold outside of the controlled group.

Springfield and Lincoln report the following financial statements at December 31, 2021:

Income Statement
	Springfield	Lincoln
Sales	$ 5,660,000	$ 1,160,000
Cost of goods sold	(3,830,000)	(687,500)
Gross Profit	1,830,000	472,500
Income (loss) from subsidiary	185,600
Operating expenses	(1,045,200)	(215,500)
Net income	$ 970,400	$    257,000

Statement of Retained Earnings
	Springfield	Lincoln
BOY Retained Earnings	$6,464,800	$2,385,000
Net income	970,400	257,000
Dividends	(105,400)	(25,000)
EOY Retained Earnings	$7,329,800	$2,617,000

Balance Sheet
	Springfield	Lincoln
Assets:
Cash	$   978,400	$   474,200
Accounts receivable	1,142,300	702,700
Inventory	1,515,400	622,900
Equity Investment	2,571,200
PPE, net	5,934,800	1,802,300
	$12,142,100	$3,602,100
Liabilities and Stockholders’ Equity:
Current Liabilities	$     689,700	$   204,600
Long-term Liabilities	2,054,000	379,500
Common Stock	853,600	92,100
APIC	1,215,000	308,900
Retained Earnings	7,329,800	2,617,000
	$12,142,100	$3,602,100

Required:

a.   Compute the EOY non-controlling interest equity balance.

b.   Prepare the consolidation spreadsheet on the acquisition date.

Answer 1

b.

Consolidated Spreadsheet of SPRINGFEILD COMPANY as on Acquisition Date

SPRINGFEILD COMPANY
Consolidated Trial Balance, Income Statement, Retained Earning Statement & Balance Sheet as on Acquisition Date
Accounts Title	Trial Balance		Adjustments		Adjusted Trail Balance		Income Statement		Retained Earning Statement		Balance Sheet
	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr
Cash	$978,400				$978,400						$978,400
Accounts Receivable	$1,142,300				$1,142,300						$1,142,300
Inventory	$1,515,400				$1,515,400						$1,515,400
Equity Investment	$2,571,200				$2,571,200						$2,571,200
PPE, Net	$5,934,800				$5,934,800						$5,934,800
Current Liabilities		$689,700				$689,700						$689,700
Long-Term Liabilities		$2,054,000				$2,054,000						$2,054,000
Common Stock		$853,600				$853,600						$853,600
APIC		$1,215,000				$1,215,000						$1,215,000
Sales		$5,660,000				$5,660,000		$5,660,000
Cost of Goods Sold	$3,830,000				$3,830,000		$3,830,000
Income (Loss) from Subsidiary		$185,600				$185,600		$185,600
Operating Expenses	$1,045,200				$1,045,200		$1,045,200
BOY Retained Earnings		$6,464,800				$6,464,800				$6,464,800
Dividents	$105,400				$105,400				$105,400
Total-	$17,122,700	$17,122,700	$0	$0	$17,122,700	$17,122,700	$4,875,200	$5,845,600	$105,400	$6,464,800	$12,142,100	$4,812,300
Net Income							$970,400			$970,400
Total-							$5,845,600	$5,845,600	$105,400	$7,435,200
EOY Reatined Earnings									$7,329,800			$7,329,800
Total-									$7,435,200	$7,435,200	$12,142,100	$12,142,100

Consolidated Spreadsheet of LINCOLN COMPANY as on Acquisition Date

LINCOLN COMPANY
Consolidated Trial Balance, Income Statement, Retained Earning Statement & Balance Sheet as on Acquisition Date
Accounts Title	Trial Balance		Adjustments		Adjusted Trail Balance		Income Statement		Retained Earning Statement		Balance Sheet
	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr
Cash	$474,200				$474,200						$474,200
Accounts Receivable	$702,700				$702,700						$702,700
Inventory	$622,900				$622,900						$622,900
PPE, Net	$1,802,300				$1,802,300						$1,802,300
Current Liabilities		$204,600				$204,600						$204,600
Long-Term Liabilities		$379,500				$379,500						$379,500
Common Stock		$92,100				$92,100						$92,100
APIC		$308,900				$308,900						$308,900
Sales		$1,160,000				$1,160,000		$1,160,000
Cost of Goods Sold	$687,500				$687,500		$687,500
Operating Expenses	$215,500				$215,500		$215,500
BOY Retained Earnings		$2,385,000				$2,385,000				$2,385,000
Dividents	$25,000				$25,000				$25,000
Total-	$4,530,100	$4,530,100	$0	$0	$4,530,100	$4,530,100	$903,000	$1,160,000	$25,000	$2,385,000	$3,602,100	$985,100
Net Income							$257,000			$257,000
Total-							$1,160,000	$1,160,000	$25,000	$2,642,000
EOY Reatined Earnings									$2,617,000			$2,617,000
Total-									$2,642,000	$2,642,000	$3,602,100	$3,602,100