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 $972,000 in cash and stock options. At the acquisition date, NetSpeed had common stock of $1,020,000 and Retained Earnings of $51,000. The acquisition-date fair value of the 10 percent noncontrolling interest was $108,000. QuickPort attributed the $9,000 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 2017 $ 12,600 $ 1,800 2018 18,000 1,800 On July 1, 2017, QuickPort sold communication equipment to NetSpeed for $12,000. The equipment originally cost $17,000 and had accumulated depreciation of $6,500 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) 972000 Net Income for 2017 12600 Less: Data Base Amortization (Excess of fair value to book value) 9000/5 -1800 Adjusted net Income 10800 Ownership 90% 90% Quickport share of income 9720 Less: Gain on Equipment transferred 12000-(17000-6500) 1500 Add: Depreciation (6 month 1500/3year=500/2 250 Equity earning of Netspeed 8470 Less: Dividend Share 90% 1800*90% 1620 Balance on 31/12/17 978850 Net Income for 2018 18000 Less: Data Base Amortization (Excess of fair value to book value) 9000/5 -1800 Adjusted net Income 16200 Ownership % 90% Quickport share of income 14580 Add: Depreciation 1500/3 500 Equity earning of Netspeed 15080 Less: Dividend Share 90% 1800*90% 1620 Balance on 31/12/18 992310

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