On January 1, 2018, Access IT Company exchanged $1,040,000 for 40 percent of the
ID: 2522166 • Letter: O
Question
On January 1, 2018, Access IT Company exchanged $1,040,000 for 40 percent of the outstanding voting stock of Net Connect. Especially attractive to Access IT was a research project underway at Net Connect that would enhance both the speed and quantity of client-accessible data. Although not recorded in Net Connect's financial records, the fair value of the research project was considered to be $2,000,000.
In contractual agreements with the sole owner of the remaining 60 percent of Net Connect, Access IT was granted (1) various decision-making rights over Net Connect's operating decisions and (2) special service purchase provisions at below-market rates. As a result of these contractual agreements, Access IT established itself as the primary beneficiary of Net Connect. Immediately after the purchase, Access IT and Net Connect presented the following balance sheets:
Each of the above amounts represents a fair value at January 1, 2018. The fair value of the 60 percent of Net Connect shares not owned by Access IT was $1,560,000.
Prepare an acquisition-date consolidated worksheet for Access IT and its variable interest entity.
Access IT Net Connect Cash $ 65,000 $ 45,000 Investment in Net Connect 1,040,000 Capitalized software 985,000 160,000 Computer equipment 1,070,000 60,000 Communications equipment 920,000 340,000 Patent 195,000 Total assets $ 4,080,000 $ 800,000 Long-term debt $ (945,000 ) $ (620,000 ) Common stock-Access IT (2,700,000 ) Common stock-Net Connect (45,000 ) Retained earnings (435,000 ) (135,000 ) Total liabilities and equity $ (4,080,000 ) $ (800,000 )Explanation / Answer
The retained earnings and common stock of the company Net connect will be bifurcated between Access IT and Non controlling interest.
All the assets and liabilities will get merge expect for the specific one.