Assume a parent company acquires an 80% interest in its subsidiary for a purchase price that was
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Question:
Assume a parent company acquires an 80% interest in its subsidiary for a purchase price that was $392,000 over the book value of the subsidiarys Stockholders Equity on January 1, 2XX1. On the acquisition date, the parent assigned the excess fair value to the following [A] assets:
| AAP Item | Initial Fair Value | Useful Life |
|---|---|---|
| Property, plant, and equipment (PPE) | $224,000 | 20 years |
| Patent | 168,000 | 10 years |
| $392,000 |
The parent and the subsidiary report the following financial statements for the year ended December 31, 2XX4:
| Parent | Subsidiary | Parent | Subsidiary | ||
|---|---|---|---|---|---|
| Income statement: | Balance sheet: | ||||
| Sales | $7,000,000 | $1,400,000 | Assets | ||
| Cost of goods sold | (5,600,000) | (840,000) | Cash | $840,000 | $420,000 |
| Gross profit | 1,400,000 | 560,000 | Accounts receivable | 980,000 | 280,000 |
| Equity income | 140,000 | - | Inventory | 1,260,000 | 560,000 |
| Operating expenses | (840,000) | (357,000) | Equity investment | 1,097,600 | - |
| Net income | $700,000 | $203,000 | PPE, net | 4,200,000 | 980,000 |
| $8,377,600 | $2,240,000 | ||||
| Statement of retained earnings: | Liabilities and Stockholders Equity | ||||
| Beginning retained earnings | $2,800,000 | $707,000 | Current liabilities | $700,000 | $280,000 |
| Net income | 700,000 | 203,000 | Long-term liabilities | 1,517,600 | 868,000 |
| Dividends | (280,000) | (70,000) | Common stock | 1,260,000 | 84,000 |
| EOY retained earnings | $3,220,000 | $840,000 | APIC | 1,680,000 | 168,000 |
| Retained earnings | 3,220,000 | 840,000 | |||
| $8,377,600 | $2,240,000 |
Required a. Prepare the consolidation financial statements for the year ended December 31, 2XX4. Note: Use negative signs with your answers, when appropriate.
| Consolidated | |
|---|---|
| Income statement: | |
| Sales | |
| Cost of goods sold | |
| Gross profit | |
| Equity income | |
| Operating expenses | |
| Net income | |
| NI attributable to noncontrolling interests | |
| NI attributable to parent | |
| Statement of retained earnings: | |
| BOY retained earnings | |
| Net income | |
| Dividends | |
| EOY retained earnings | |
| Balance sheet: | |
| Assets | |
| Cash | |
| Accounts receivable | |
| Inventory | |
| Equity investment | |
| Property, plant, and equipment (PPE), net | |
| Patent | |
| Total assets | |
| Liabilities and stockholders equity | |
| Current liabilities | |
| Long-term liabilities | |
| Common stock | |
| APIC | |
| Retained earnings | |
| Noncontrolling interest | |
| Total liabilities and stockholders' equity |
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