Consolidation Worksheet; Intercompany Software Use Charges Comparative financial statements for Puda Inc. and its 100%-owned subsidiary, Suda Inc., are as follows:

Puda Inc.

Cost Method®

Equity Method'’

Suda Inc.

Income Statement (2006)

Sales . . $ 400,000 $ 400,000 $ 225,000 Cost of sales . . (220,000) (220,000) (120,000)

Expenses Dividend income

.

(from Suda) .

. (140,000)

. 20,000

(140,000) (80,000)

Equity in net income (of Suda) . 25,000 Intercompany license fee income . . 10,000 10,000 Net Income . . $ 70,000

$ 75,000 $ 25,000 Statement of Retained Earnings Balances, 1/1/06 . . $ 75,000 $ 130,000 + Net income . . 70,000 $ 55,000 75,000 25,000 - Dividends declared . . (40,000) (40,000) (20,000)

Balances, 12/31/06 . . $ 105,000 $ 165,000 $ 60,000 Additional Information 1. On 1/2/06, Puda acquired a manufacturing software package costing $100,000, which cost it capitalized into a fixed asset account for amortization (over five years) to a manufacturing over¬
head account. Thus the amortization expense is an inventoriable cost on Puda’s books.
2. On 1/3/06, Puda made this software available to Suda for use in its manufacturing process at an annual fee of $10,000. On this date, Suda paid $10,000 to Puda and debited Deferred Charges. By year-end, the $10,000 had been written off to a manufacturing overhead account.
Thus the intercompany software charge is an inventoriable cost on Suda’s books.
3. During 2006, Puda manufactured 500 units and sold 400 units; Suda manufactured 300 units and sold 210 units.
4. In applying the equity method of accounting, the accountant recorded 100% of the subsidiary’s reported net income of $25,000.
Required Equity Method 1. How much of the royalty fee charges remains in Suda’s inventory at 12/31/06? 2. Prepare all consolidation entries as of 12/31/06.
3. Prepare a consolidation worksheet at 12/31/06.
Cost Method 4. Prepare all consolidation entries as of 12/31/06.
5. Prepare a consolidation worksheet at 12/31/06.
Thinking Critically Case