Chapter 6, Problem 53E

a.

To determine

Depict the computation of equity method income (loss) from VIE.

Explanation of Solution

An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. A business is an incorporated set of operations and assets that are able to conduct and maintaining directly to investors or other owners, members or participants in order to provide a yield in the form of dividends, lower costs or other economic advantages. A business combination is defined as a transaction or other event where an acquirer (an investor entity) gains control of one or more companies.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

A legal business arrangement where an individual has a controlling interest regardless of not having a majority of voting rights is known as variable interest entity. A variable interest entity has the following characteristics:

• The wealth of the company is not sufficient to support its activities.
• Residual equity holders are not in charge of variable interest entity.
• Residual equity holders are protected from gains and losses that are normally accompanying with ownership.

The computation of equity method income (loss) from VIE is as follows:

	VIE
Sales	210,000
Cost of goods sold	(140,000)
Gross profit	70,000
Operating expenses	(21,000)
Net income	49,000
P% = 35%	35%
	17,150
100% EOYIIP(Upstream) $105,000*40%	(42,000)
	(24,850)

Hence, the equity method loss from VIE is $(245,850).

b.

To determine

Calculate the amount of consolidated net income.

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. A business is an incorporated set of operations and assets that are able to conduct and maintaining directly to investors or other owners, members or participants in order to provide a yield in the form of dividends, lower costs or other economic advantages. A business combination is defined as a transaction or other event where an acquirer (an investor entity) gains control of one or more companies.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

Consolidation is about combining two or more entities' assets, liabilities, and other

financial items into one. The concept consolidate in the context of financial accounting

often refers to the consolidation of financial statements in which all subsidiaries report

under the umbrella of a parent company.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income,

etc.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of consolidated net income is as follows:

	Consolidated
Sales ($770,000 + $210,000 - $105,000)	$875,000
Cost of goods sold ($462,000 + $140,000 + $42,000 – $105,000)	539,000
Gross margin	336,000
Operating expenses ($123,200 + $21,000)	(144,200)
Equity method income (loss) from VIE	0
Consolidated Net income	191,800
Net income attributable to NCI ($49,000 * 65%)	(31,850)
Net income attributable to Controlling Interest	$    159,950

Hence, the consolidated net income is $281,500.

c.

To determine

Compute the amount of consolidated net income attributable to the non-controlling

interest.

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. A business is an incorporated set of operations and assets that are able to conduct and maintaining directly to investors or other owners, members or participants in order to provide a yield in the form of dividends, lower costs or other economic advantages. A business combination is defined as a transaction or other event where an acquirer (an investor entity) gains control of one or more companies.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange. A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

Consolidated net income is the sum of the parent's net income excluding any subsidiary

income recognized in its individual financial statements plus the net income of its

subsidiaries determined after excluding unrealized inventory gain, intra-group income.

The amount of consolidated net income attributable to the non-controlling interest is as

follows:

VIE Net Income of nci%:  $49,000 of 65% = $31,850.

d.

To determine

Compute the amount of consolidated net income attributable to the controlling interest.

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. A business is an incorporated set of operations and assets that are able to conduct and maintaining directly to investors or other owners, members or participants in order to provide a yield in the form of dividends, lower costs or other economic advantages. A business combination is defined as a transaction or other event where an acquirer (an investor entity) gains control of one or more companies.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies The ending balance for the equity of the non-controlling interest is reported in the consolidated balance sheet section of the stockholders ' equity.

Controlling interest is when a shareholder, or group that acts in kind, holds a majority of voting stock in a company.

Reporting Company (Stand Alone) Net Income + (VIE Net Income *p%) – IIP (Upstream) $184,800 + ($49,000*35%) – $42,000 = $159,950

e.

To determine

Compute the amount of consolidated net income; consolidated net income attributable to

the non-controlling interest; consolidated net income attributable to the controlling

interest.

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. A business is an incorporated set of operations and assets that are able to conduct and maintaining directly to investors or other owners, members or participants in order to provide a yield in the form of dividends, lower costs or other economic advantages. A business combination is defined as a transaction or other event where an acquirer (an investor entity) gains control of one or more companies.

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded on a stock exchange.

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies The ending balance for the equity of the non-controlling interest is reported in the consolidated balance sheet section of the stockholders ' equity.

Controlling interest is when a shareholder, or group that acts in kind, holds a majority of voting stock in a company.

A non-controlling interest, also known as NCI or minority interest is a stance of possession where a corporate shareholder owns less than 50% of outstanding shares and can only impact management decisions rather than controlling them.

A voting interest entity is owned by its voting shareholders. In the case of a voting interest company, a reporting organization consolidates a legal entity when it has a controlling financial interest in a legal entity through its possession of voting interests. Controlling financial interest is characterized as an investment of 50 percent or more of the voting capital of another entity.

If voting interest, pro-rata elimination of upstream profits assigned to NCI.

	Consolidated
Sales ($770,000 + $210,000 − $105,000)	$875,000
Cost of goods sold ($462,000 + $140,000 + $42,000 – $105,000)	539,000
Gross margin	336,000
Operating expenses ($123,200 + $21,000)	(144,200)
Equity method income (loss) from VIE	0
Consolidated Net income	191,800
Net income attributable to NCI ([$49,000 - $42,000]* 65%)	(4,550)
Net income attributable to Controlling Interest	$    187,250

Hence, the consolidated net income remains same but NCI and controlling interest income will change as shown above.

The computation of consolidated net income attributable to the non-controlling interest is

as follows:

Confirmed VIE Net Income of nci%:  ([$49,000 − $42,000] of 65%) = $4,550

The computation of consolidated net income attributable to the controlling interest is as follows:

Reporting Company (Stand Alone) Net Income + (VIE Net Income of p%) – IIP (Upstream) of p% $184,800 + ($49,000*35%) – ($42,000* 35%) = $187,250