Question
On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed,...
On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $1,107,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,150,000 and Retained Earnings of $57,500. The acquisition-date fair value of the 10 percent noncontrolling interest was $123,000. QuickPort attributed the $22,500 excess of NetSpeed's fair value over book value to a database with a five-year remaining life.
During the next two years, NetSpeed reported the following:
| Net Income | Dividends Declared | |||||
| 2017 | $ | 31,500 | $ | 4,500 | ||
| 2018 | 45,000 | 4,500 | ||||
On July 1, 2017, QuickPort sold communication equipment to NetSpeed for $28,500. The equipment originally cost $32,500 and had accumulated depreciation of $5,500 and an estimated remaining life of three years at the date of the intra-entity transfer.
1)Compute the equity method balance in QuickPort's Investment in NetSpeed, Inc., account as of December 31, 2018.
2)Prepare the worksheet adjustments for the December 31, 2018, consolidation of QuickPort and NetSpeed.
Answers
1 Equity method balance in QuickPort's Investment in Net Speed, Inc. Cash paid for acquisition-90% stock $1,107,000 Add: Income from NetSpeed for 2017 $24,300 Less: Dividend for 2017-90% $4,050 Investment in NetSpeed Inc. 1/1/2018 $1,127,250 Add: Income from NetSpeed for 2018 $36,450 Less: Dividend for 2018-90% $4,050 Investment in NetSpeed Inc. 31/12/2018 $1,159,650 Income from subsidiary 2017 Net income $31,500 Less: Amortization of database (22500/5) $4,500 Net adjusted income $27,000 90%-Quickport $24,300 10%-NCI $2,700 Income from subsidiary 2018 Net income $45,000 Less: Amortization of database (22500/5) $4,500 Net adjusted income $40,500 90%-Quickport $36,450 10%-NCI $4,050 2 Worksheet Adjustment for December 31, 2018 1 Common Stock $1,150,000 Retained Earnings $80,000 Investment in NetSpeed Inc. $1,104,750 Non-controlling interest $125,250 2 Database $22,500 Investment in NetSpeed Inc. $22,500 3 Amortization expenses $4,500 Database $4,500 4 Income from Netspeed Inc. $36,450 Investment in Net Speed Inc. $36,450 5 Investment in NetSpeed Inc. $4,050 Dividend receivable $4,050 6 Gain on sale in equipment $1,500 Communication Equipment $4,000 Accumulated Depreciation-equipment $4,750 Depreciation-equipment $500 Cost of communication equipment sold $32,500 Less: Accumulated depreciation ($5,500) Book value of equipment $27,000 Sales price of Equipment $28,500 Gain on Sale $1,500 In the book of Quickport Accumulated Depreciation $5,500 Cash $28,500 Gain on sale of equipment $1,500 Communication Equipment $32,500 In the books of NetSpeed Inc. Communication Equipment $28,500 Cash $28,500 Depreciation-equipment $4,750 Accumulated Depreciation-equipment $4,750 Adjustment entry in Year 2017 Gain on sale in equipment $1,500 Communication Equipment $4,000 Accumulated Depreciation-equipment $5,250 Depreciation-equipment $250 (depreciation charged for 6 months on excess amount is revesed)
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