On January 1, 2021, Access IT Company exchanged $1,080,000 for 45 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 $2,040,000. In contractual agreements with the sole owner of the remaining 55 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: (Note: Parentheses indicate credit balances.) Access IT Net Connect Cash $ 69,000 $ 49,000 Investment in Net Connect 1,080,000 Capitalized software 989,000 164,000 Computer equipment 1,074,000 64,000 Communications equipment 924,000 344,000 Patent 199,000 Total assets $ 4,136,000 $ 820,000 Long-term debt $ (949,000 ) $ (624,000 ) Common stock-Access IT (2,740,000 ) Common stock-Net Connect (49,000 ) Retained earnings (447,000 ) (147,000 ) Total liabilities and equity $ (4,136,000 ) $ (820,000 ) Each of the above amounts represents a fair value at January 1, 2021. The fair value of the 55 percent of Net Connect shares not owned by Access IT was estimated at $1,320,000. Prepare an acquisition-date consolidation worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.)

On January 1, 2021, Access IT Company exchanged $1,080,000 for 45 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 $2,040,000. In contractual agreements with the sole owner of the remaining 55 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: (Note: Parentheses indicate credit balances.) Access IT Net Connect Cash $ 69,000 $ 49,000 Investment in Net Connect 1,080,000 Capitalized software 989,000 164,000 Computer equipment 1,074,000 64,000 Communications equipment 924,000 344,000 Patent 199,000 Total assets $ 4,136,000 $ 820,000 Long-term debt $ (949,000 ) $ (624,000 ) Common stock-Access IT (2,740,000 ) Common stock-Net Connect (49,000 ) Retained earnings (447,000 ) (147,000 ) Total liabilities and equity $ (4,136,000 ) $ (820,000 ) Each of the above amounts represents a fair value at January 1, 2021. The fair value of the 55 percent of Net Connect shares not owned by Access IT was estimated at $1,320,000. Prepare an acquisition-date consolidation worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

In contractual agreements with the sole owner of the remaining 55 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:

(Note: Parentheses indicate credit balances.)

	Access IT		Net Connect
Cash	$	69,000		$	49,000
Investment in Net Connect		1,080,000
Capitalized software		989,000			164,000
Computer equipment		1,074,000			64,000
Communications equipment		924,000			344,000
Patent					199,000
Total assets	$	4,136,000		$	820,000
Long-term debt	$	(949,000	)	$	(624,000	)
Common stock-Access IT		(2,740,000	)
Common stock-Net Connect					(49,000	)
Retained earnings		(447,000	)		(147,000	)
Total liabilities and equity	$	(4,136,000	)	$	(820,000	)

Each of the above amounts represents a fair value at January 1, 2021. The fair value of the 55 percent of Net Connect shares not owned by Access IT was estimated at $1,320,000.

Prepare an acquisition-date consolidation worksheet for Access IT and its variable interest entity. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.)

**ACCESS IT COMPANY AND NET CONNECT**

**Consolidation Worksheet**

**At January 1, 2021**

| | **Access IT** | **Net Connect** | **Consolidation Entries** | **Consolidated** |
|----------------|---------------|-----------------|---------------------------|------------------|
| | | | **Debit** | **Credit** | **NCI** | **Balances** |
| **Cash** | $69,000 | $49,000 | | | | |
| **Investment in Net Connect** | 1,080,000 | | | | | |
| **Capitalized software** | 989,000 | $164,000 | | | | |
| **Computer equipment** | 1,074,000 | $64,000 | | | | |
| **Communications equipment** | 924,000 | $344,000 | | | | |
| **Research and development asset** | | | | | | |
| **Patent** | | $199,000 | | | | |
| **Goodwill** | | | | | | |
| **Total assets** | $4,136,000 | $820,000 | | | | $0 |
| | | | | | | |
| **Long-term debt** | $(949,000) | $(624,000) | | | | |
| **Common stock—Access IT** | $(2,740,000) | | | | | |
| **Common stock—Net Connect** | | $(49,000) | | | | |
| **Retained earnings** | $(447,000) | $(147,000) | | | | |
| **Noncontrolling interest** | | | | | | |
| **Total liabilities and equity** | $(4,136,000) | $(820,000) | | | $0 | $0 |

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This worksheet provides a financial overview of the consolidation of Access IT

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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