a.
Disaggregate and document the AAP 100 percent activity, the AAP controlling interest
and the AAP non-controlling interest.
a.
Explanation of Solution
An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.
An acquisition premium is the distinction between the actual price paid to purchase a business and the pre-acquisition approximately real value of the acquired firm. It's often recorded on the
A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.
A non-controlling interest, also known as NCI or minority interest, is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.
100% AAP Amortization | Amortized | |||||
Allocation | 2015 | 2016 | 2017 | 2018 | 2019 | |
Accounts Rec. | (4,000) | (4,000) | - | - | - | - |
PPE, net | 35,000 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 |
Patents | 30,000 | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 |
Notes payable | 6,000 | 1,500 | 1,500 | 1,500 | 1,500 | - |
Goodwill | 49,000 | - | - | - | - | - |
Net | 116,000 | 6,000 | 10,000 | 10,000 | 10,000 | 8,500 |
100% Unamortized AAP | Unamortized | |||||
Allocation | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | |
Accounts Rec. | (4,000) | - | - | - | - | - |
PPE, net | 35,000 | 31,500 | 28,000 | 24,500 | 21,000 | 17,500 |
Patents | 30,000 | 25,000 | 20,000 | 15,000 | 10,000 | 5,000 |
Notes payable | 6,000 | 4,500 | 3,000 | 1,500 | - | - |
Goodwill | 49,000 | 49,000 | 49,000 | 49,000 | 49,000 | 49,000 |
Net | 116,000 | 110,000 | 100,000 | 90,000 | 80,000 | 71,500 |
p% AAP Amortization | Amortized | |||||
Allocation | 2015 | 2016 | 2017 | 2018 | 2019 | |
Accounts Rec. | (2,800) | (2,800) | ||||
PPE, net | 24,500 | 2,450 | 2,450 | 2,450 | 2,450 | 2,450 |
Patents | 21,000 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 |
Notes payable | 4,200 | 1,050 | 1,050 | 1,050 | 1,050 | |
Goodwill | 34,950 | - | ||||
Net | 81,850 | 4,200 | 7,000 | 7,000 | 7,000 | 5,950 |
p% Unamortized AAP | Unamortized | |||||
Allocation | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | |
Accounts Rec. | (2,800) | - | - | - | ||
PPE, net | 24,500 | 22,050 | 19,600 | 17,150 | 14,700 | 12,250 |
Patents | 21,000 | 17,500 | 14,000 | 10,500 | 7,000 | 3,500 |
Notes payable | 4,200 | 3,150 | 2,100 | 1,050 | - | - |
Goodwill | 34,950 | 34,950 | 34,950 | 34,950 | 34,950 | 34,950 |
Net | 81,850 | 77,650 | 70,650 | 63,650 | 56,650 | 50,700 |
nci% AAP Amortization | Amortized | |||||
Allocation | 2015 | 2016 | 2017 | 2018 | 2019 | |
Accounts Rec. | (1,200) | (1,200) | ||||
PPE, net | 10,500 | 1,050 | 1,050 | 1,050 | 1,050 | 1,050 |
Patents | 9,000 | 1,500 | 1,500 | 1,500 | 1,500 | 1,500 |
Notes payable | 1,800 | 450 | 450 | 450 | 450 | |
Goodwill | 14,050 | |||||
Net | 34,150 | 1,800 | 3,000 | 3,000 | 3,000 | 2,550 |
nci% Unamortized AAP | Unamortized | |||||
Allocation | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | |
Accounts Rec. | (1,200) | - | - | - | - | - |
PPE, net | 10,500 | 9,450 | 8,400 | 7,350 | 6,300 | 5,250 |
Patents | 9,000 | 7,500 | 6,000 | 4,500 | 3,000 | 1,500 |
Notes payable | 1,800 | 1,350 | 900 | 450 | - | - |
Goodwill | 14,050 | 14,050 | 14,050 | 14,050 | 14,050 | 14,050 |
Net | 34,150 | 32,350 | 29,350 | 26,350 | 23,350 | 20,800 |
b.
Calculate and organize the
b.
Explanation of Solution
Consolidation is about combining two or more entities' assets, liabilities, and other
financial items into one. The concept consolidate in the context of financial accounting
often refers to the consolidation of financial statements in which all subsidiaries report
under the umbrella of a parent company.
An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.
The transactions between inter-companies are between a parent company and its subsidiaries or other related entities. If the parent company sells inventory to the related entity, this problem may become more complex.
Intercompany
One downstream asset sale:
Intercompany profit recognized on January 1, 2018: $90,000 − $60,000 = $30,000, 5-year remaining life
Profit confirmed each year: $30,000 / 5 = $6,000
Downstream | Upstream | |
Net intercompany profit deferred at January 1, 2019 | $24,000 | $0 |
Less: Deferred intercompany profit recognized during 2019 | (6,000) | 0 |
Net intercompany profit deferred at December 31, 2019 | $18,000 | $0 |
Intercompany inventory transactions:
Intercompany inventory sales during 2019: $30,000
Downstream | Upstream | |||
Intercompany profit on 1/1/19 | 0 | 32,000 | ||
Intercompany profit on 12/31/19 | 0 | 36,000 |
c.
Compute the starting and ending balances of the pre-consolidation Equity Investment
account starting with the equity of the subsidiary 's stockholders.
c.
Explanation of Solution
Consolidation is about combining two or more entities' assets, liabilities, and other
financial items into one. The concept of consolidation in the context of financial
accounting often refers to the consolidation of financial statements in which all
subsidiaries report under the umbrella of a parent company.
An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.
Investment at 1/1/2019 (Equity) | |
p% x book value of the net assets of subsidiary | 294,000 |
Add: unamortized (p%) AAP | 56,650 |
Deduct: Def. 100%*EOY D-S IIP | - |
Deduct: Def. p%*EOY U-S IIP | (2,625) |
Deduct: Def 100%*EOY D-S Asset Gain | (24,000) |
Deduct: Def p%*EOY D-S Asset Gain | - |
324,025 |
Investment at 12/31/2019 (Equity) | |
p% x book value of the net assets of subsidiary | 343,000 |
Add: unamortized (p%) AAP | 50,700 |
Deduct: Def. 100%*EOY D-S IIP | (5,000) |
Deduct: Def. p%*EOY U-S IIP | - |
Deduct: Def 100%*EOY D-S Asset Gain | (18,000) |
Deduct: Def p%*EOY U-S Asset Gain | - |
370,700 |
d.
Compute the amount of the [ADJ] consolidating entry.
d.
Explanation of Solution
Consolidation is about combining two or more entities' assets, liabilities, and other
financial items into one. The concept of consolidation in the context of financial
accounting often refers to the consolidation of financial statements in which all
subsidiaries report under the umbrella of a parent company.
An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.
A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.
A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.
p% of change in RE(S) from acquisition date through BOY | 193,200 | |
Less: Cum p% AAP amort. from acquisition date through BOY | (25,200) | |
Less: p% of the BOY U-S unconfirmed intercompany inventory profits | (2,625) | |
Less: 100% of the BOY D-S unconfirmed intercompany deprec. asset profits | (24,000) | |
[ADJ] Amount | 141,375 |
e.
Calculate the owners' equity attributable to the starting and ending of non-controlling
interest balances beginning with the owners ' equity of the subsidiary.
e.
Explanation of Solution
Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.
A controlling interest is a shareholding interest in a corporation with sufficient voting stock shares to take precedence in the action of any shareholder. A majority (over 50 per cent) of the voting shares is always a controlling interest.
A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.
NCI at 1/1/2019 | |
nci% of book value of the net assets of subsidiary | 126,000 |
Add: nci% unamortized AAP | 23,350 |
Deduct: Def. nci%*EOY IIP | (1,125) |
148,225 |
NCI at 12/31/2019 | |
nci% of book value of the net assets of subsidiary | 147,000 |
Add: nci% unamortized AAP | 20,800 |
167,800 |
f.
Calculate consolidated net income, controlling interest net income and non-controlling
interest net income.
f.
Explanation of Solution
Consolidation is about combining two or more entities' assets, liabilities, and other
financial items into one. The concept consolidate in the context of financial accounting
often refers to the consolidation of financial statements in which all subsidiaries report
under the umbrella of a parent company.
Consolidated net income is the sum of the parent's net income excluding any subsidiary
income recognized in its individual financial statements plus the net income of its
subsidiaries determined after excluding unrealized inventory gain, intra-group income,
etc.
Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through
Parent’s stand-alone net income | 72,000 |
Plus: 100% realized downstream deferred profits | 6,000 |
Less: 100% unrealized downstream deferred profits | (5,000) |
Parent’s adjusted stand-alone net income | 73,000 |
Subsidiary’s stand-alone net income | 90,000 |
Plus: 100% realized upstream deferred profits | 3,750 |
Less: 100% AAP amortization | (8,500) |
Subsidiary’s adjusted stand-alone net income | 85,250 |
Consolidated net income | 158,250 |
Parent’s stand-alone net income | 72,000 |
Plus: 100% realized downstream deferred profits | 6,000 |
Less: 100% unrealized downstream deferred profits | (5,000) |
Parent’s adjusted stand-alone net income | 73,000 |
p% x subsidiary’s stand-alone net income | 63,000 |
Plus: p% realized upstream deferred profits | 2,625 |
Less: p% AAP amortization (from schedule) | (5,950) |
p% of the Subsidiary’s adjusted stand-alone net income | 59,675 |
Consolidated net income attributable to the CI | 132,675 |
nci% x subsidiary’s stand-alone net income | 27,000 |
Plus: nci% realized upstream deferred profits | 1,125 |
Less: nci% AAP amortization (from schedule) | (2,550) |
Consolidated net income attributable to the NCI | 25,575 |
g.
Complete the C-E-A-D-I consolidation entries and execute the consolidation worksheet.
g.
Explanation of Solution
Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and
A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies. A party outside the economic unit embodied in the consolidated financial statements does not retain the equity of the shareholders of the subsidiary, and therefore should not be included in the consolidated shareholders' equities.
Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.
Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.
The required consolidation
Date | Account title and Explanation | Post Ref | Debit ($) | Credit ($) |
[ADJ] Equity Investment | ||||
[C] Equity income from subsidiary | ||||
Income attributable to NCI | ||||
Dividends | ||||
Non-controlling interest | ||||
(Eliminates the change in the investment account of AAP adjusted changes in SE(S)) | ||||
[E] Common Stock (S) @ BOY | ||||
Retained Earnings (S) @BOY | ||||
Equity Investment @BOY | ||||
Non-controlling interest (@BOY) | ||||
(Eliminates p% of the beginning balance in SE(S) by eliminating the BV portion of the beginning investment account) | ||||
[A] Buildings and net @ BOY (100% AAP) | ||||
Patents, net @ BOY (100% AAP) | ||||
Goodwill | ||||
Equity Investment @ BOY | ||||
Non-controlling interest @ BOY | ||||
(Allocates beginning-of-year 100% AAP to the controlling and non-controlling interests by eliminating the remaining investment account and establishing the BOY AAP for nci%) | ||||
[D] Depreciation and Amortization expense | ||||
Buildings and Equipment, net | ||||
Patents | ||||
(To record depreciation and amortization expense for the AAP assets) | ||||
[Icogs] Equity investment @ BOY | ||||
Non-controlling interest | ||||
Cost of goods sold | ||||
(Recognition of deferred gain on inventory sale and proration between parent and subsidiary) | ||||
[Isales] Sales | ||||
Cost of goods sold | ||||
(Elimination of 100% of all intercompany transactions) | ||||
[Icogs] Cost of goods sold | ||||
Inventory | ||||
(Deferral of gross profit on this year inventory sales) | ||||
[Ipay] Accounts payable | ||||
Accounts receivable | ||||
(Elimination of intercompany receivable and payable) | ||||
[Igain] Equity investment @ BOY | ||||
Buildings and Equipment, net @ BOY | ||||
[Idep] Buildings and Equipment, net | ||||
Depreciation Expense |
The consolidated spreadsheet is shown below:
Parent | Subsidiary | Dr | Cr | Consol | |||
Income Statement | |||||||
Sales | 500,000 | 260,000 | [Isales] | 30,000 | 730,000 | ||
Cost of Goods Sold | (280,000) | (125,000) | [Icogs] | 5,000 | [Icogs] | 3,750 | (376,250) |
[Isales] | 30,000 | ||||||
Gross Profit | 220,000 | 135,000 | 353,750 | ||||
Depreciation & Amort Expense | (12,000) | (9,000) | [D] | 8,500 | [Idep] | 6,000 | (23,500) |
Operating Expenses | (130,000) | (24,000) | (154,000) | ||||
Interest Expense | (6,000) | (12,000) | (18,000) | ||||
Total expenses | (148,000) | (45,000) | (195,500) | ||||
Income (loss) from Subsidiary | 14,000 | - | [C] | 14,000 | - | ||
Consolidated Net Income | 86,000 | 90,000 | 158,250 | ||||
Consolidated NI attrib to NCI | - | - | [C] | 25,575 | (25,575) | ||
Consolidated NI attrib to CI | 86,000 | 90,000 | 132,675 | ||||
Statement of Ret Earnings: | |||||||
Beg. Ret. Earnings | 575,000 | 290,000 | [E] | 290,000 | [ADJ] | 141,375 | 716,375 |
Consolidated NI attrib to CI | 86,000 | 90,000 | 132,675 | ||||
Dividends Declared | (60,000) | (20,000) | [C] | 20,000 | (60,000) | ||
Ending Retained Earnings | 601,000 | 360,000 | 789,050 | ||||
Balance Sheet | |||||||
Cash | 160,000 | 20,000 | 180,000 | ||||
Accounts receivable | 200,000 | 50,000 | [Ipay] | 10,000 | 240,000 | ||
Inventories | 340,000 | 80,000 | [Icogs] | 5,000 | 415,000 | ||
Buildings & Equipment, net | 1,500,000 | 440,000 | [A] | 21,000 | [D] | 3,500 | 1,939,500 |
[Idep] | 6,000 | [Igain] | 24,000 | ||||
Other assets | 78,350 | 100,000 | 178,350 | ||||
Patents | - | 10,000 | [A] | 10,000 | [D] | 5,000 | 15,000 |
Equity Investment | 182,650 | [ADJ] | 141,375 | [E] | 294,000 | 0 | |
[Icogs] | 2,625 | [A] | 56,650 | ||||
[Igain] | 24,000 | ||||||
Goodwill | [A] | 49,000 | 49,000 | ||||
Total Assets | 2,461,000 | 700,000 | 3,016,850 | ||||
Accounts Payable | 460,000 | 22,000 | [Ipay] | 10,000 | 472,000 | ||
Notes Payable | 1,000,000 | 158,000 | 1,158,000 | ||||
Other liabilities | 100,000 | 30,000 | 130,000 | ||||
Common Stock | 300,000 | 130,000 | [E] | 130,000 | 300,000 | ||
Retained Earnings | 601,000 | 360,000 | 789,050 | ||||
Non-controlling Interest | - | - | [Icogs] | 1,125 | [C] | 19,575 | 167,800 |
[E] | 126,000 | ||||||
[A] | 23,350 | ||||||
Total Liabilities and Equity | 2,461,000 | 700,000 | 768,200 | 768,200 | 3,016,850 |
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