Required: Prepare an acquisition-date consolidation worksheet Note: For accounts where multiple consolidation er
On January 1, 2024, Pikes Corporation loaned Venti Company $311,000 and agreed to guarantee all of Venti’s long-term debt in exchange for (1) decision-making authority over all of Venti’s activities and (2) an annual management fee of 25 percent of Venti’s annual revenues. As a result of the agreement, Pikes becomes the primary beneficiary of Venti (now a variable interest entity). Pikes’ loan to Venti stipulated a 10 percent (market) rate of interest to be paid annually with principal due in 10 years. On January 1, 2024, Pikes estimated that the fair value of Venti’s equity shares equaled $86,000 while Venti’s book value was $66,000. Any excess fair over book value at that date was attributed to Venti’s trademark with an indefinite life. Because Pikes owns no equity in Venti, all of the acquisition-date excess fair over book value is allocated to the noncontrolling interest. Venti paid Pikes 25 percent of its 2024 revenues at the end of the year and recorded the payment in other operating expenses. Venti also paid the interest to Pikes for the loan. On December 31, 2024, Pikes and Venti submitted the following statements for consolidation. (Parentheses indicate credit balances.) Accounts Pikes Venti Revenues $ (803,000) $ (227,000) Management fee (56,750) 0 Cost of good sold 632,000 90,100 Other operating expenses 87,000 65,100 Interest income (31,100) 0 Interest expense 0 40,100 Net income (171,850) (31,700)
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