Problem - On January 1, 2013, Anywhere Tech Company exchanged $840,000 for 40 percent of the outstanding voting stock of Cloud Computing. Especially attractive to Anywhere Tech was a research project underway at Cloud Computing that would enhance both the speed and quantity of client accessible data. Although not recorded in Cloud Computing's financial records, the fair value of the research project was considered to be $1,800,000.
In contractual agreements with the sole owner of the remaining 60 percent of Cloud Computing, Anywhere Tech was granted (1) various decision-making rights over Cloud Computing's operating decisions and (2) special service purchase provisions at below market rates. As a result of these contractual agreements, Anywhere Tech established itself as the primary beneficiary of Cloud Computing. Immediately after the purchase, Anywhere Tech and Cloud Computing presented the following balance sheets:
|
|
Anywhere Tech
|
Cloud Computing
|
|
Cash
|
$ 45,000
|
$ 25,000
|
|
Investment in Cloud Computing
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840,000
|
|
|
Capitalized software
|
965,000
|
140,000
|
|
Computer equipment
|
1,050,000
|
40,000
|
|
Communications equipment
|
900,000
|
320,000
|
|
Patent
|
|
175,000
|
|
Total assets
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$ 3,800,000
|
$ 700,000
|
|
Long-term debt
|
(925,000)
|
(600,000)
|
|
Common stock-Anywhere Tech
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(2,500,000)
|
|
|
Common stock-Cloud Computing
|
|
(25,000)
|
|
Retained earnings
|
(375,000)
|
(75,000)
|
|
Total liabilities and equity
|
$(3,800,000)
|
$(700,000)
|
Each of the above amounts represents a fair value at January 1, 2013. The fair value of the 60 percent of Cloud Computing shares not owned by Anywhere Tech was $1,260,000.
Prepare an acquisition-date consolidated worksheet for Anywhere Tech and its variable interest entity.