A parent company acquired 80% of the stock of a subsidiary company on January 1, 2015. The total fair value of the controlling interest and the noncontrolling interest on that date was 94,000 in excess of the book value of the subsidiarys stockholders equity on the acquisition date. $18,000 was assigned to building and equipment and was to be depreciated for 6 years. $42,000 was assigned to a license and amortized over 7 years and the remaining $34,000 was goodwill. The goodwill is not quite split 80/20 between the parent and subsidiary. For consolidation split the goodwill portion $27,800 to parent and remaining $6,200 to subsidiary. The other AAP assets will still have an 80/20 split.

On January 1, 2018, the parent sold a building to the subsidiary for $80,000. On this date, the

building was carried on the parents books (net of accumulated depreciation) at $65,000. Both companies estimated that the building has a remaining life of 6 years on the intercompany sale date, with no salvage value.

Each company routinely sells merchandise to the other company, with a profit margin of 25 percent of selling price (regardless of the direction of the sale). During 2019, intercompany sales amount to

$15,000, of which $8,000 of merchandise remains in the ending inventory of the parent. On December

31, 2019, $4,000 of these intercompany sales remained unpaid. Additionally, the subsidiarys December

31, 2018 inventory includes $12,000 of merchandise purchased in the preceding year from the parent.

During 2018, intercompany sales amount to $20,000, and on December 31, 2018, $6,000 of these intercompany sales remained unpaid.

The parent accounts for its Equity Investment in the subsidiary using the equity method. The pre-consolidation financial statements for the two companies for the year ended December 31, 2019, are provided below:

a) Complete the consolidation entries according to the C-E-A-D-I sequence. HINT: Your C Entry will have 3 debits and 2 credits.

b) Now, complete the consolidation worksheet according to this template:

Parent Parent Subsidiary $ 45,000 54,000 130,000 126,000 57.000 Subsidiary Balance sheet: $200,000 Cash (128,000) Accounts receivable 72,000 Inventories .. Buildings and equipment, net. (10,000) Other assets.. (38,000) Licenses.. (2,000) Equity investment. (50,000) Total assets. Income statement: Sales Cost of goods sold Gross profit... Depreciation & amort. expense Operating expenses. Interest expense.. Total expenses Income (loss) from subsidiary. Net income. Statement of retained earnings: Beginning retained earnings Net income Dividends declared. Ending retained earnings $500,000 (260,000) 240,000 (12,000) (155,000) (6,000) (173,000) 14,300 $ 81,300 $ 25,000 48,000 46,000 90,000 100,000 10,000 233,000 $645,000 $319,000 $ 22,000 $266,700 81,300 (60,000) $288,000 $129,000 22,000 (15,000) $136,000 Accounts payable Notes payable. Other liabilities Common stock Retained earnings Total liabilities and equity $ 35,000 50,000 22,000 250,000 288,000 $645,000 $ 15,000 22,000 26,000 120,000 136,000 $319,000 Consolidation Entries Dr Parent Subsidiary Cr Consolidated 200,000 (128,000) 72,000 Income Statement Sales Cost of Goods Sold Gross Profit Income (loss) from subsidiary Depreciation & Amort Expense Operating Expenses Interest Expense Net Income 500,000 (260,000) 240,000 14,300 (12,000) (155,000) (6,000) 81,300 (10,000) (38,0001 (2,000) 22,000 Statement of Ret Earnings: Beg, Ret. Earn Net Income Dividends Declared Ending Retained Earnings 266,700 81,300 (60,000) 288,000 129,000 22,000 (15,000) 136,000 Balance Sheet Cash Accounts receivable Inventories Other assets Investment in Subsidiary Buildings and Equipment, net Licenses Total Assets 45,000 54,000 130,000 57,000 233,000 126,000 25,000 48,000 46,000 100,000 90,000 10,000 319,000 645,000 Accounts Payable Notes Payable Other liabilities Common Stock Retained Earnings Total Liabilities and Equity 35,000 50,000 22,000 250,000 288,000 645,000 15,000 22,000 26,000 120,000 136,000 319,000 Parent Parent Subsidiary $ 45,000 54,000 130,000 126,000 57.000 Subsidiary Balance sheet: $200,000 Cash (128,000) Accounts receivable 72,000 Inventories .. Buildings and equipment, net. (10,000) Other assets.. (38,000) Licenses.. (2,000) Equity investment. (50,000) Total assets. Income statement: Sales Cost of goods sold Gross profit... Depreciation & amort. expense Operating expenses. Interest expense.. Total expenses Income (loss) from subsidiary. Net income. Statement of retained earnings: Beginning retained earnings Net income Dividends declared. Ending retained earnings $500,000 (260,000) 240,000 (12,000) (155,000) (6,000) (173,000) 14,300 $ 81,300 $ 25,000 48,000 46,000 90,000 100,000 10,000 233,000 $645,000 $319,000 $ 22,000 $266,700 81,300 (60,000) $288,000 $129,000 22,000 (15,000) $136,000 Accounts payable Notes payable. Other liabilities Common stock Retained earnings Total liabilities and equity $ 35,000 50,000 22,000 250,000 288,000 $645,000 $ 15,000 22,000 26,000 120,000 136,000 $319,000 Consolidation Entries Dr Parent Subsidiary Cr Consolidated 200,000 (128,000) 72,000 Income Statement Sales Cost of Goods Sold Gross Profit Income (loss) from subsidiary Depreciation & Amort Expense Operating Expenses Interest Expense Net Income 500,000 (260,000) 240,000 14,300 (12,000) (155,000) (6,000) 81,300 (10,000) (38,0001 (2,000) 22,000 Statement of Ret Earnings: Beg, Ret. Earn Net Income Dividends Declared Ending Retained Earnings 266,700 81,300 (60,000) 288,000 129,000 22,000 (15,000) 136,000 Balance Sheet Cash Accounts receivable Inventories Other assets Investment in Subsidiary Buildings and Equipment, net Licenses Total Assets 45,000 54,000 130,000 57,000 233,000 126,000 25,000 48,000 46,000 100,000 90,000 10,000 319,000 645,000 Accounts Payable Notes Payable Other liabilities Common Stock Retained Earnings Total Liabilities and Equity 35,000 50,000 22,000 250,000 288,000 645,000 15,000 22,000 26,000 120,000 136,000 319,000