Question
In: Accounting
On January 1, 2018, Access IT Company exchanged $910,000 for 40 percent of the outstanding voting...
On January 1, 2018, Access IT Company exchanged $910,000 for 40 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 $1,870,000.
In contractual agreements with the sole owner of the remaining 60 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 | $ | 52,000 | $ | 32,000 | |||
| Investment in Net Connect | 910,000 | ||||||
| Capitalized software | 972,000 | 147,000 | |||||
| Computer equipment | 1,057,000 | 47,000 | |||||
| Communications equipment | 907,000 | 327,000 | |||||
| Patent | 182,000 | ||||||
| Total assets | $ | 3,898,000 | $ | 735,000 | |||
| Long-term debt | $ | (932,000 | ) | $ | (607,000 | ) | |
| Common stock-Access IT | (2,570,000 | ) | |||||
| Common stock-Net Connect | (32,000 | ) | |||||
| Retained earnings | (396,000 | ) | (96,000 | ) | |||
| Total liabilities and equity | $ | (3,898,000 | ) | $ | (735,000 | ) | |
Each of the above amounts represents a fair value at January 1, 2018. The fair value of the 60 percent of Net Connect shares not owned by Access IT was $1,365,000.
Prepare an acquisition-date consolidated worksheet for Access IT and its variable interest entity
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Solutions
Expert Solution
| FMV of Net Connect's Net Assets (excluding Goodwill) | |
| FMV of Net Connect's book assets | $7,35,000 |
| FMV of Net Connect's book liabilities | -$6,07,000 |
| FMV of Research project not in books | $18,70,000 |
| Total (A) | $19,98,000 |
| Total Value to be assigned to Net Connect | |
| Acquisition Price Paid for stock of Net Connect (40%) | $9,10,000 |
| FMV of NCI (60%) | $13,65,000 |
| Total (B) | $22,75,000 |
| Value to be assigned to Goodwill (B) - (A) |
$2,77,000 |
| Entries to be passed | ||||
| 1 | Common stock-NetConnect Dr | $32,000 | ||
| Retained earnings Dr | $96,000 | |||
| To Investment in NetConnect (40%) | $51,200 | |||
| To Noncontrolling interest (60%) | $76,800 | |||
| 2 | Research and development asset Dr | $18,70,000 | ||
| Goodwill Dr | $2,77,000 | |||
| To Investment in NetConnect (40%) | $8,58,800 | |||
| To Noncontrolling interest (60%) | $12,88,200 |
| ACCESS IT COMPANY AND NET CONNECT | |||||||
| Consolidation Worksheet | |||||||
| January 1, 2018 | |||||||
| Consolidation Entries | Consolidated | ||||||
| Access IT | Net Connect | Total | Debit | Credit | NCI | Balances | |
| Cash | $52,000 | $32,000 | $84,000 | $84,000 | |||
| Investment in NetConnect | $9,10,000 | $9,10,000 | $9,10,000 | $0 | |||
| Capitalized software | $9,72,000 | $1,47,000 | $11,19,000 | $11,19,000 | |||
| Computer equipment | $10,57,000 | $47,000 | $11,04,000 | $11,04,000 | |||
| Communications equipment | $9,07,000 | $3,27,000 | $12,34,000 | $12,34,000 | |||
| Research and development asset | $0 | $18,70,000 | $18,70,000 | ||||
| Patent | $1,82,000 | $1,82,000 | $1,82,000 | ||||
| Goodwill | $0 | $2,77,000 | $2,77,000 | ||||
| Total assets | $38,98,000 | $7,35,000 | $46,33,000 | $21,47,000 | $9,10,000 | $0 | $58,70,000 |
| Long-term debt | -$9,32,000 | -$6,07,000 | -$15,39,000 | -$15,39,000 | |||
| Common stock-Access IT | -$25,70,000 | -$25,70,000 | -$25,70,000 | ||||
| Common stock-NetConnect | -$32,000 | -$32,000 | $32,000 | $0 | |||
| Retained earnings | -$3,96,000 | -$96,000 | -$4,92,000 | $96,000 | -$3,96,000 | ||
| Noncontrolling interest | $0 | $13,65,000 | $13,65,000 | -$13,65,000 | |||
| Total liabilities and equity | -$38,98,000 | -$7,35,000 | -$46,33,000 | $1,28,000 | $13,65,000 | $13,65,000 | -$58,70,000 |
ekkarill92 answered 1 year agoRelated Solutions
On January 1, 2018, Access IT Company exchanged $850,000 for 40 percent of the outstanding voting...
On January 1, 2018, Access IT Company exchanged $850,000 for 40
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 $1,810,000.
In contractual agreements with the sole owner of the remaining
60 percent of Net Connect, Access...
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...
On January 1, 2018 Casey Corporation exchanged $3,271,000 cash for 100 percent of the outstanding voting...
On January 1, 2018 Casey Corporation exchanged $3,271,000 cash
for 100 percent of the outstanding voting stock of Kennedy
Corporation. Casey plans to maintain Kennedy as a wholly owned
subsidiary with separate legal status and accounting information
systems.
At the acquisition date, Casey prepared the following fair-value
allocation schedule:
Fair value of
Kennedy (consideration transferred)
$
3,271,000
Carrying amount
acquired
2,600,000
Excess fair
value
$
671,000
to buildings
(undervalued)
$
378,000
to licensing
agreements (overvalued)
(188,000
)
190,000
to goodwill...
On January 1, 2018 Casey Corporation exchanged $3,282,000 cash for 100 percent of the outstanding voting...
On January 1, 2018 Casey Corporation exchanged $3,282,000 cash
for 100 percent of the outstanding voting stock of Kennedy
Corporation. Casey plans to maintain Kennedy as a wholly owned
subsidiary with separate legal status and accounting information
systems.
At the acquisition date, Casey prepared the following fair-value
allocation schedule:
Fair value of Kennedy
(consideration transferred)
$
3,282,000
Carrying amount acquired
2,600,000
Excess fair value
$
682,000
to buildings (undervalued)
$
353,000
to licensing agreements
(overvalued)
(128,000
)
225,000
to goodwill...
On January 1, 2018 Casey Corporation exchanged $3,244,000 cash for 100 percent of the outstanding voting...
On January 1, 2018 Casey Corporation exchanged $3,244,000 cash
for 100 percent of the outstanding voting stock of Kennedy
Corporation. Casey plans to maintain Kennedy as a wholly owned
subsidiary with separate legal status and accounting information
systems.
At the acquisition date, Casey prepared the following fair-value
allocation schedule:
Fair value of Kennedy (consideration transferred)
$
3,244,000
Carrying amount acquired
2,600,000
Excess fair value
$
644,000
to buildings (undervalued)
$
366,000
to licensing agreements (overvalued)
(196,000
)
170,000
to goodwill...
On January 1, 2020, Pinnacle Corporation exchanged $3,527,500 cash for 100 percent of the outstanding voting...
On January 1, 2020, Pinnacle Corporation exchanged $3,527,500
cash for 100 percent of the outstanding voting stock of Strata
Corporation. On the acquisition date, Strata had the following
balance sheet:
Cash
$
284,000
Accounts payable
$
383,000
Accounts receivable
311,000
Long-term debt
3,060,000
Inventory
443,000
Common stock
1,500,000
Buildings (net)
1,920,000
Retained earnings
1,205,000
Licensing agreements
3,190,000
Total assets
$
6,148,000
Total liabilities and equity
$
6,148,000
Pinnacle prepared the following fair-value allocation:
Fair value of Strata (consideration transferred)
$...
On January 1, 2020, Pinnacle Corporation exchanged $3,477,500 cash for 100 percent of the outstanding voting...
On January 1, 2020, Pinnacle Corporation exchanged $3,477,500
cash for 100 percent of the outstanding voting stock of Strata
Corporation. On the acquisition date, Strata had the following
balance sheet:
Cash
$
94,000
Accounts payable
$
400,000
Accounts receivable
339,000
Long-term debt
2,880,000
Inventory
352,000
Common stock
1,500,000
Buildings (net)
2,160,000
Retained earnings
1,295,000
Licensing agreements
3,130,000
Total assets
$
6,075,000
Total liabilities and equity
$
6,075,000
Pinnacle prepared the following fair-value allocation:
Fair value of Strata (consideration transferred)
$...
On January 1, 2021, Casey Corporation exchanged $3,250,000 cash for 100 percent of the outstanding voting...
On January 1, 2021, Casey Corporation exchanged $3,250,000 cash
for 100 percent of the outstanding voting stock of Kennedy
Corporation. Casey plans to maintain Kennedy as a wholly owned
subsidiary with separate legal status and accounting information
systems.
At the acquisition date, Casey prepared the following fair-value
allocation schedule:
Fair value of Kennedy (consideration transferred)
$
3,250,000
Carrying amount acquired
2,600,000
Excess fair value
$
650,000
to buildings (undervalued)
$
342,000
to licensing agreements (overvalued)
(160,000
)
182,000
to goodwill...
On January 1, 2017, Pinnacle Corporation exchanged $3,527,500 cash for 100 percent of the outstanding voting...
On January 1, 2017, Pinnacle Corporation exchanged $3,527,500
cash for 100 percent of the outstanding voting stock of Strata
Corporation. On the acquisition date, Strata had the following
balance sheet:
Cash
$
284,000
Accounts payable
$
383,000
Accounts receivable
311,000
Long-term debt
3,060,000
Inventory
443,000
Common stock
1,500,000
Buildings (net)
1,920,000
Retained earnings
1,205,000
Licensing agreements
3,190,000
$
6,148,000
$
6,148,000
Pinnacle prepared the following fair-value allocation:
Fair value of Strata (consideration transferred)
$
3,527,500
Carrying amount acquired
2,705,000
Excess...
On January 1, 2015, Casey Corporation exchanged $3,218,000 cash for 100 percent of the outstanding voting...
On January 1, 2015, Casey Corporation exchanged $3,218,000 cash
for 100 percent of the outstanding voting stock of Kennedy
Corporation. Casey plans to maintain Kennedy as a wholly owned
subsidiary with separate legal status and accounting information
systems.
At the acquisition date, Casey prepared the following
fair-value allocation schedule:
Fair value of Kennedy (consideration
transferred)
$
3,218,000
Carrying amount acquired
2,600,000
Excess fair value
$
618,000
to buildings (undervalued)
$
326,000
to licensing agreements
(overvalued)
(171,000)
155,000
to...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Use the bond term's below to answer the question Maturity 7 years Coupon Rate 4% Face...
- What experience have you had with Organization Development or with Change Management? Describe the organization, the...
- 1. Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds...
- Given an array of positive integers a, your task is to calculate the sum of every...
- Define “culture.” Software is defined by the Merriam-Webster Dictionary as "the programs that run on a...
- In humans, hypotrichosis (sparse body hair) is a rare autosomal recessive condition. Let h = hypotrichosis...
- Increase all of the listing prices by 5% for all listings under $500,000 and 10% for...
ADVERTISEMENT