Consolidation subsequent to date of acquisition - Equity method with noncontrolling interest and AAP Assume that, on January 1, 2009, a parent company acquired an 80% interest in its subsidiary. The total fair value of the controlling and noncontrolling interests was $500,000 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 Initial Fair Value Useful Life (years)
Asset Initial
Fair Value Useful Life (years)
Property, plant and equipment (PPE), net $100,000 10
Customer list 150,000 10
Goodwill 250,000 Indefinite
$500,000
80% of the Goodwill is allocated to the parent. The parent and the subsidiary report the following financial statements at December 31, 2013:
Parent Subsidiary Parent Subsidiary
Income statement: Balance sheet:
Sales $7,330,000 $1,870,500 Assets
Cost of goods sold (5,131,000) (1,122,300) Cash $411,313 $131,511
Gross profit 2,199,00 748,200 Accounts receivable938,240 433,956
Income (loss) from subsidiary 189,496 Inventory 1,422,020 557,409
Operating expenses(1,392,700) (486,330) Equity investment1,475,671
Net income $995,796 261,870 Property, plant and equipment (PPE), net
5,374,356 1,280,669
$9,621,600 $2,403,545
Statement of retained earnings:
BOY retained earnings $3,682,592 $966,425 Liabilities and stockholders’ equity
Net income 995,796 261,870 Current liabilities $1,053,321 $433,956
Dividends (199,159) (39,281) Long-term liabilities 2,000,000 500,000
EOY retained earnings $4,479,229$1,189,014Common stock1,198,455 124,700
APIC 890,595 155,875
Retained earnings 4,479,229 1,189,014
$9,621,600 $2,403,545
Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders’ equity of the subsidiary.