On January 1, 2020, Father Corporation exchanged $657,000 for 90% of Son Corporation. The consideration transferred by Father provided a reasonable basis for assessing the total 1/1/20, fair value of Son Corporation. Son’s book value on that date consisted of common stock of $150,000 and retained earnings of $470,000. At the acquisition date, Father assessed the carrying amount of Son’s equipment (4-year remaining life) to be undervalued by $20,000 and long-term notes payable (5-year remaining life) overvalued by $40,000. Any remaining excess of Son’s acquisition date fair value over its book value was attributed to a previously unrecognized customer base (10-year remaining life).

In 2020, Son reported a net income of $80,000. In 2021, Son earns a net income of $40,000. Son pays no dividends in both years.

During the years, Son sold inventory to Father at a 25% gross profit rate. Transfers for the two years after this business combination was created amounted to the following:

2020: Transfer Price: 116,000; Intra-entity ending inventory at transfer price: 34,800

2021: Transfer Price: 128,000; Intra-entity ending inventory at transfer price: 51,200

Requirements:

1. Prepare the Acquisition Date Fair Value Allocation schedule. Label the numbers in the schedule. For example: Fair value of the consideration transferred: $120,000.

2. Determine the current year excess amortization expenses of fair value allocations. Show and label your calculations.

3. Prepare consolidation worksheet entries for December 31, 2021. You need to label each worksheet entry prepared, e.g., SAIDE, etc.

4. Compute the net income attributable to the noncontrolling interest for 2021. Show and label your calculations.

Answer rating: 100% (QA)

Answer 1 Acquisition Date Fair Value Allocation Schedule Fair value of the consideration transferred ... View the full answer