Assume, on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The...

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Assume, on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $456,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: [A] Asset Patent Goodwill Initial Fair Value Useful Life $171,000 10 years 285,000 Indefinite $456,000 80% of the Goodwill is allocated to the parent. Assume the subsidiary sells inventory to the parent (upstream) which includes that inventory in products that it ultimately sells to customers outside of the controlled group. You have compiled the following data as of 2021 and 2022: 2021 2022 Transfer price for inventory sale $475,000 $570,000 Cost of goods sold Gross profit (399,000) (427,500) $76,000 $142,500 96 Inventory remaining Gross profit deferred EOY receivable/payable 35% $26,600 $35,625 $76,000 $133,000 25% The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the equity method of pre-consolidation investment bookkeeping. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2022: Parent Subsidiary Parent Income statement: Balance sheet: $6,365,000 $2,375,000 Cash (4,275,000) (1,425,000) Accounts receivable 950,000 Inventory Subsidiary $475,000 $380,000 Sales Cost of goods sold 665,000 Gross profit 2,090,000 855,000 570,000 760,000 Income (loss) from subsidiary 131,100 Equity investment 1,304,540 Operating expenses (1,900,000) Net income $321,100 (760,000) Property, plant and equipment (PPE), net 3,800,000 $190,000 950,000 $7,099,540 $2,660,000 Statement of retained earnings: BOY retained earnings $1,933,440 Net income 321,100 Dividends EOY retained earnings (190,000) $2,064,540 $1,045,000 APIC $893,000 Current liabilities 190,000 Long-term liabilities (38,000) Common stock Retained earnings 475,000 950,000 190,000 2,064,540 1,045,000 $7,099,540 $2,660,000 $760,000 $475,000 2,850,000 855,000 95,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. (Complete for the first four years only.) Unamortized Unamortized AAP 1/1/2016 2016 AAP Amortization 12/31/2016 2017 Amortization Unamortized AAP 2018 AAP 2019 12/31/2017 Amortization 12/31/2018 Amortization Unamortized 100% Patent Goodwill 171000 285000 17100 0 456000 17100 153900 285000 438900 17100 0 17100 136800 285000 421800 17100 0 17100 119000 285000 404700 17100 0 17100 80% Patent 136800 13680 123120 13680 109440 13680 95760 13680 Goodwill 228000 0 228000 0 228000 0 228000 0 364800 13680 351120 13680 337440 13680 323760 13680 20% Patent Goodwill 34200 3420 30780 3420 27360 3420 23940 3420 57000 0 57000 0 91200 3420 87780 3420 57000 84360 0 57000 0 3420 80940 3420 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Intercompany profit on 1/1/22 Intercompany profit on 12/31/22 0 0 26600 35625 c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Use a negative sign with your answer to indicate a reduction to net income. Equity investment at 1/1/122: 80% x book value of the net assets of subsidiary 942400 Add: Unamortized AAP 0 Less: 80% of upstream deferred intercompany profits 0 0 Assume, on January 1, 2016, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $456,000 over the book value of the subsidiary's Stockholders' Equity on the acquisition date. The parent assigned the excess to the following [A] assets: [A] Asset Patent Goodwill Initial Fair Value Useful Life $171,000 10 years 285,000 Indefinite $456,000 80% of the Goodwill is allocated to the parent. Assume the subsidiary sells inventory to the parent (upstream) which includes that inventory in products that it ultimately sells to customers outside of the controlled group. You have compiled the following data as of 2021 and 2022: 2021 2022 Transfer price for inventory sale $475,000 $570,000 Cost of goods sold Gross profit (399,000) (427,500) $76,000 $142,500 96 Inventory remaining Gross profit deferred EOY receivable/payable 35% $26,600 $35,625 $76,000 $133,000 25% The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent uses the equity method of pre-consolidation investment bookkeeping. The parent and the subsidiary report the following pre-consolidation financial statements at December 31, 2022: Parent Subsidiary Parent Income statement: Balance sheet: $6,365,000 $2,375,000 Cash (4,275,000) (1,425,000) Accounts receivable 950,000 Inventory Subsidiary $475,000 $380,000 Sales Cost of goods sold 665,000 Gross profit 2,090,000 855,000 570,000 760,000 Income (loss) from subsidiary 131,100 Equity investment 1,304,540 Operating expenses (1,900,000) Net income $321,100 (760,000) Property, plant and equipment (PPE), net 3,800,000 $190,000 950,000 $7,099,540 $2,660,000 Statement of retained earnings: BOY retained earnings $1,933,440 Net income 321,100 Dividends EOY retained earnings (190,000) $2,064,540 $1,045,000 APIC $893,000 Current liabilities 190,000 Long-term liabilities (38,000) Common stock Retained earnings 475,000 950,000 190,000 2,064,540 1,045,000 $7,099,540 $2,660,000 $760,000 $475,000 2,850,000 855,000 95,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP), the controlling interest AAP and the noncontrolling interest AAP. (Complete for the first four years only.) Unamortized Unamortized AAP 1/1/2016 2016 AAP Amortization 12/31/2016 2017 Amortization Unamortized AAP 2018 AAP 2019 12/31/2017 Amortization 12/31/2018 Amortization Unamortized 100% Patent Goodwill 171000 285000 17100 0 456000 17100 153900 285000 438900 17100 0 17100 136800 285000 421800 17100 0 17100 119000 285000 404700 17100 0 17100 80% Patent 136800 13680 123120 13680 109440 13680 95760 13680 Goodwill 228000 0 228000 0 228000 0 228000 0 364800 13680 351120 13680 337440 13680 323760 13680 20% Patent Goodwill 34200 3420 30780 3420 27360 3420 23940 3420 57000 0 57000 0 91200 3420 87780 3420 57000 84360 0 57000 0 3420 80940 3420 b. Calculate and organize the profits and losses on intercompany transactions and balances. Downstream Upstream Intercompany profit on 1/1/22 Intercompany profit on 12/31/22 0 0 26600 35625 c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders' equity of the subsidiary. Use a negative sign with your answer to indicate a reduction to net income. Equity investment at 1/1/122: 80% x book value of the net assets of subsidiary 942400 Add: Unamortized AAP 0 Less: 80% of upstream deferred intercompany profits 0 0