• 1. Parent acquired Subsidiary on January 1, 2009 at a price $150,000 in excess of book value. Of that excess, $100,000 was allocated to an unrecorded Patent with a 10-year life, with the remainder to goodwill. In 2010, Subsidiary sold to Parent land having a book value of $70,000 for a total price of $100,000.

Financial statements of the two companies for the year ended December 31, 2011 are presented below.

	Parent	Subsidiary
Sales revenue	$1,500,000	$187,500
Cost of goods sold	(1,050,000)	(112,500)
Gross profit	450,000	75,000
Operating expenses	(285,000)	(48,750)
Equity income	16,250	_
Net Income	$ 181,250	$ 26,250
Retained Earnings, 1/1/11	$ 753,600	$ 96,875
Net income	181,250	26,250
Dividends	( 41,688)	( 3,412)
Retained Earnings, 12/31/11	$ 893,162	$119,713
Cash and receivables	$ 342,783	$104,106
Inventory	291,000	55,875
Equity investment	237,838
Property, plant & equipment (Net)	1,399,800	103,375
Total Assets	$2,271,421	$263,356
Accounts payable	$ 112,350	$ 22,380
Accrued liabilities	138,408	30,638
Notes payable	750,000	62,500
Common stock	245,250	12,500
Additional paid-in capital	132,251	15,625
Retained Earnings, 12/31/11	893,162	119,713
Total Liabilities and Equities	$2,271,421	$263,356

Required:

a. Prepare a schedule showing the computation of Equity Income on Parent's books for 2011.

b. Prepare a schedule showing the computation of Equity Investment on Parent's books at December 31, 2011.

c. Prepare the consolidation entries for 2011.

2.

• Parent acquired Subsidiary on January 1, 2011 at a price $150,000 in excess of book value. Of that excess, $100,000 was allocated to an unrecorded Customer List with a 10-year life, with the remainder to Goodwill.

On January 2014, Subsidiary sold equipment to Parent for $60,000. The equipment had a cost of $70,000 and accumulated depreciation of $28,000. The remaining life of the equipment was estimated at 6 years. Financial statements for the two companies for the year ended December 31, 2015 are presented below.

	Parent	Subsidiary
Sales revenue	$5,000,000	$ 500,000
Cost of goods sold	(3,600,000)	(300,000)
Gross profit	1,400,000	200,000
Operating expenses	(750,000)	(130,000)
Equity income	63,000	_
Net Income	$ 713,000	$ 70,000
Retained Earnings, 1/1/15	$2,922,150	$ 112,500
Net income	713,000	70,000
Dividends	(142,000)	(10,000)
Retained Earnings, 12/31/15	$3,493,150	$ 172,500
Cash and receivables	$1,404,650	$ 376,000
Inventory	1,300,000	275,000
Equity investment	350,000
Property, plant & equipment (Net)	5,030,000	515,000
Total Assets	$8,084,650	$1,166,000
Accounts payable	$ 505,000	$ 89,000
Accrued liabilities	595,000	115,000
Notes payable	1,250,000	650,000
Common stock	211,500	62,000
Additional paid-in capital	2,030,000	77,500
Retained Earnings, 12/31/15	3,493,150	172,500
Total Liabilities and Equities	$8,084,650	$1,166,000

Required:

a. Prepare the journal entries on the books of Parent and Subsidiary to record the equipment sale.

b. Compute the amount of unrealized gain at January 1, 2015.

c. Prepare entries required under the equity method on Parent's books for 2015.

d. Prepare the consolidation entries for 2015.