On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding vot

Question

On January 1, 2017, QuickPort Company acquired 90 percent of the outstanding voting stock of NetSpeed, Inc., for $1,125,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,170,000 and Retained Earnings of $58,500. The acquisition-date fair value of the 10 percent noncontrolling interest was $125,000. QuickPort attributed the $21,500 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 $ 30,100 $ 4,300 2018 43,000 4,300 On July 1, 2017, QuickPort sold communication equipment to NetSpeed for $27,500. The equipment originally cost $30,500 and had accumulated depreciation of $5,400 and an estimated remaining life of three years at the date of the intra-entity transfer. Compute the equity method balance in QuickPort's Investment in NetSpeed, Inc., account as of December 31, 2018. Prepare the worksheet adjustments for the December 31, 2018, consolidation of QuickPort and NetSpeed.

Explanation / Answer

Consideration Paid (Fair Value) 1125000 Net Income for 2017 30100 Less: Data Base Amortization (Excess of fair value to book value) 21500/5 -4300 Adjusted net Income 25800 Ownership 90% 90% Quickport share of income 23220 Less: Gain on Equipment transferred 27500-(30500-5400) 2400 Add: Depreciation (6 month 2400/3year=800/2 400 Equity earning of Netspeed 21220 Less: Dividend Share 90% 4300*90% 3870 Balance on 31/12/17 1142350 Net Income for 2018 43000 Less: Data Base Amortization (Excess of fair value to book value) 21500/5 -4300 Adjusted net Income 38700 Ownership % 90% Quickport share of income 34830 Add: Depreciation 2400/3 800 Equity earning of Netspeed 35630 Less: Dividend Share 90% 4300*90% 3870 Balance on 31/12/18 1174110

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