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On January 1, 2020, QuickPort Company acquired 90 percent of the outstanding voting stock of
NetSpeed, Inc., for $810,000 in cash and stock options. At the acquisition date, NetSpeed had
common stock of $800,000 and Retained Earnings of $40,000. The acquisition-date fair value of
the 10 percent noncontrolling interest was $90,000. QuickPort attributed the $60,000 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
2020
2021
$ 80,000
115,000
$8,000
8,000
On July 1, 2020, QuickPort sold communication equipment to NetSpeed for $42,000. The
equipment originally cost $48,000 and had accumulated depreciation of $9,000 and an estimated
remaining life of three years at the date of the intra-entity transfer.
a. Compute the equity method balance in QuickPort's Investment in NetSpeed, Inc., account as of
December 31, 2021.
b. Prepare the worksheet adjustments for the December 31, 2021, consolidation of QuickPort and
NetSpeed.

Sagot :

abiolataiwo2015

a) If on January 1, 2020, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., the equity method balance in QuickPort's Investment in NetSpeed, Inc., account as of December 31, 2021 will be:

Investment Account:

Consideration paid (fair value)  $810,000

Net Income for 2020 $80,000

Database distribution ($60,000/5) ($12,000)

Netspeed's adjusted income $68,000

($80,000-$12,000)

Quickport ownership percentage 90%

(100%-10%)

Quickport share of net income $61,200

(90%×$68,000)

Gain on equipment transfer $3,000

[$42,000-($48,000-$9,000)  

Depreciation adjustment (6 Months) $500

[($3,000/3year)/2]

Equity in earnings of Netspeed $58,700

($61,200-$3,000+$500)

Quickport share of Netspeed's dividends ($7,200)

(90% ×$8,000)  

Balance 12/31/2020  $861,500

($810,000+$58,700-$7,200)

Netspeed's reported net income for 2021 $115,000

Database amortization ($12,000)

($60,000/5)

Netspeed's adjusted 2021 net income $103,000

Quickport's ownership percentage 90%

(100%-10%)

Quickpoet's share of Net speed net income $92,700

(90%×$103,000)  

Depreciation adjustment $500

[($3,000/3year)/2]

Equity in earnings of Netspeed company 2021 $93,200

($92,700+$500)

Quickport's share of Netspeed's dividend ($7,200)

(90% ×$8,000)

Balance 12/31/2021  $947,500

($861,500+$93,200-$7,200)

b. Preparation of  the worksheet adjustments for the December 31, 2021, consolidation of QuickPort and NetSpeed.

1. Dr Equipment $6,000

($48,000 - $42,000)

Cr Investment in Netspeed $2,500

 ​($3,000-$500)  

Accumulated depreciation  $8,500

($6,000+$2,500)

2. Dr Common stock-Netspeed $800,000

Dr Retained eanings-Netspeed $114,000

[$42,000+($80,000-$8,000)]  

Cr Investment in Netspeed  $822,600

[($800,000+$114,000)×90%]

Cr Noncontrolling interest  $91,400

[($800,000+$114,000)×10%]

3. Dr  Database $36,000

($48,000-$12,000)  

Cr Investment in Netspeed  $32,400

($36,000×90%)

Cr Noncontrolling interest  $3,600

($36,000×10%)

4. Dr Equity in earnings of Netspeed $93,200

Cr Investment in Netspeed  $93,200

5. Dr Investment in Netspeed $7,200

Dividends declared  $7,200

(90%×$8,000)

6. Dr  Amortization expense $12,000

Cr Database  $12,000

($60,000/5)

7. Dr Accumulated depreciation $1,000

Cr Depreciation expense $1,000

($3,000/3 years)

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