Problem 6-25 (LO 6-1)

On January 1, 2014, Access IT Company exchanged $1,000,000 for 40 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 $1,960,000.

In contractual agreements with the sole owner of the remaining 60 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:

Access IT Net Connect

Cash $ 61,000 $ 41,000

Investment in Net Connect 1,000,000

Capitalized software 981,000 156,000

Computer equipment 1,066,000 56,000

Communications equipment 916,000 336,000

Patent 191,000

Total assets $ 4,024,000 $ 780,000

Long-term debt $ (941,000 ) $ (616,000 )

Common stock-Access IT (2,660,000 )

Common stock-Net Connect (41,000 )

Retained earnings (423,000 ) (123,000 )

Total liabilities and equity $ (4,024,000 ) $ (780,000 )

Each of the above amounts represents a fair value at January 1, 2014. The fair value of the 60 percent of Net Connect shares not owned by Access IT was $1,500,000.

Prepare an acquisition-date consolidated 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.)