1. Prepare consolidation spreadsheet for continuous sale of inventory-Cost method 28 Points A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $800,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets: Original Useful Original Amount Life Property, plant & 250,000 10 years equipment Customer list 150,000 8 years Royalty agreement 130,000 8 years Goodwill 120,000 Indefinite The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016: Intercompan Gross Profit Remaining Receivabl y in Sales Unsold Inventory (Payable) 2016 $42,000 $10,000 $30,000 2015 $62,000 $12,500 $17,000 The inventory not remaining at the end of a given year is sold to unaffiliated entities outside of the consolidated group during the next year. The parent uses the cost method of pre-consolidation Equity Investment bookkeeping. e The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Subsidiar Parent Parent Subsidiar y V Income statement Balance sheet Sales $800,000 Assets $4,350,000 (3,050,000 (480,000) Cost of goods sold Cash $650,000 300,000 1,300,000 320,000 Accounts receivable 560,000 180,000 Gross profit Income (loss) from subsidiary 15,000 Inventory 850,000 250,000 (830,000) (200,000) Operating expenses Equity investment 950,000 485,000 120,000 4,000,000 420,000 Net income Property, plant & equipment $7,010,00 0 Statement of retained earnings $1,150,000 $2,000,000 455,000 BOY retained earnings Net income $350,000 Liabilities and stockholders' equity Accounts payable Other current liabilities 485,000 (125,000) $100,000 120,000 (15,000) Dividends 400,000 125,000 $2,360,000 560,000 Ending retained earnings Long-term liabilities 2,500,000 260,000 Common stock APIC 700,000 700,000 2,360,000 50,000 55,000 560,000 Retained earnings 7,010,000 1,150,000 Required: a. Show the computation to arrive at the ADJ entry. b. Prepare the Consolidation entries. Required: a. Show the computation to arrive at the ADJ entry. b. Prepare the Consolidation entries. a. BOY (ADJ) for consolidation at December 31, 2016 Change in RE(S) thru BOY Cumulative AAP amort thru BOY BOY Upstream IIP ADJ Amount b. [ADJ) BOY Equity Investment BOY Retained Earnings (P) [C] Income (loss) from subsidiary Dividends [E] BOY Common stock (S) BOY APIC (S) BOY Retained earnings (S) Equity investment [A] PPE Customer list Royalty Agreement Goodwill Equity Investment [D] Depec. & amort. expense PPE Customer List Royalty Agreement [Icogs] Equity Investment Cost of goods sold [Isales Sales Cost of goods sold [Icogs] Cost of goods sold Inventory [Ipay] Accounts payable Accounts receivable