A parent company acquired its 70% interest in its subsidiary on January 1, 2014. On the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $455,000 in excess of the book value of the subsidiarys Stockholders Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiarys financial statements (i.e., there is no Goodwill). The Royalty Agreement has a 7 year estimated remaining economic life on the acquisition date. Both companies use straight line amortization, with no terminal value.

In January 2017, the subsidiary sold Equipment to the parent for a cash price of $325,000. The subsidiary acquired the equipment at a cost of $624,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The subsidiary had depreciated the equipment for 6 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 4 year useful life.

Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2019. The parent uses the equity method to account for its Equity Investment.

	Parent	Subsidiary			Parent	Subsidiary
Income statement:				Balance sheet:
Sales	$4,420,000	$1,170,000		Assets
Cost of goods sold	(3,120,000)	(650,000)		Cash	$805,350	$325,000
Gross profit	1,300,000	520,000		Accounts receivable	689,000	546,000
Income (loss) from subsidiary	104,195			Inventory	1,170,000	715,000
Operating expenses	(678,600)	(325,000)		PPE, net	4,550,000	1,300,000
Net income	$725,595	$195,000		Equity investment	551,005
					$7,765,355	$2,886,000
Statement of retained earnings:
BOY retained earnings	$2,307,760	$260,000		Liabilities and stockholders equity
Net income	725,595	195,000		Accounts payable	$442,000	$325,000
				Other current liabilities	520,000	390,000
Dividends	(130,000)	(39,000)		Long-term liabilities	1,950,000	1,430,000
EOY retained earnings	$2,903,355	$416,000		Common stock	260,000	130,000
				APIC	1,690,000	195,000
				Retained earnings	2,903,355	416,000
					$7,765,355	$2,886,000

d. Reconstruct the activity in the parents pre-consolidation Equity Investment T-account for the year of consolidation.

Equity Investment
Balance at 1/1/19	Answer	Answer
Net income	Answer	Answer	Dividends
AnswerNet incomeUpstream equipment profitsDividendsAAP amortization	Answer	Answer	AnswerNet incomeUpstream equipment profitsDividendsAAP amortization
Balance at 12/31/19	Answer	Answer

e. Independently compute the owners equity attributable to the noncontrolling interest beginning and ending balances starting with the owners equity of the subsidiary.

Use negative signs with answers that are reductions.

Noncontrolling interest at 1/1/19:
Common stock		Answer
APIC		Answer
Retained earnings		Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP70% of upstream deferred intercompany profits30% of upstream deferred intercompany profits		Answer
Less:	AnswerCommon stockAPICRetained earningsUnamortized AAP70% of upstream deferred intercompany profits30% of upstream deferred intercompany profits	Answer
		Answer
Noncontrolling interest at 12/31/19:
Common stock		Answer
APIC		Answer
Retained earnings		Answer
AnswerCommon stockAPICRetained earningsUnamortized AAP70% of upstream deferred intercompany profits30% of upstream deferred intercompany profits		Answer
Less:	AnswerCommon stockAPICRetained earningsUnamortized AAP70% of upstream deferred intercompany profits30% of upstream deferred intercompany profits	Answer
		Answer

f. Independently calculate consolidated net income, controlling interest net income and noncontrolling interest net income.

Use negative signs with answers that are reductions.

Consolidated:
Parent's stand-alone net income		Answer
Subsidiary's stand-alone net income		Answer
Plus:	Answer100% realized upstream deferred profits70% realized upstream deferred profits30% realized upstream deferred profits100% AAP amortization70% AAP amortization30% AAP amortization	Answer
Less:	Answer100% realized upstream deferred profits70% realized upstream deferred profits30% realized upstream deferred profits100% AAP amortization70% AAP amortization30% AAP amortization	Answer
Subsidiary's adjusted stand-alone net income		Answer
Consolidated net income		Answer
Parent:
Parent's stand-alone net income		Answer
70% Subsidiary's stand-alone net income		Answer
Plus:	Answer100% realized upstream deferred profits70% realized upstream deferred profits30% realized upstream deferred profits100% AAP amortization70% AAP amortization30% AAP amortization	Answer
Less:	Answer100% realized upstream deferred profits70% realized upstream deferred profits30% realized upstream deferred profits100% AAP amortization70% AAP amortization30% AAP amortization	Answer
70% of subsidiary's stand-alone net income		Answer
Consolidated net income attributable to the parent		Answer
Subsidiary:
30% of subsidiary's stand-alone net income		Answer
Plus:	Answer100% realized upstream deferred profits70% realized upstream deferred profits30% realized upstream deferred profits100% AAP amortization70% AAP amortization30% AAP amortization	Answer
Less:	Answer100% realized upstream deferred profits70% realized upstream deferred profits30% realized upstream deferred profits100% AAP amortization70% AAP amortization30% AAP amortization	Answer
		Answer

g. Complete the consolidating entries according to the C-E-A-D-I sequence.

Consolidation Worksheet
Description		Debit	Credit
[C]	Equity income	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
	Dividends	Answer	Answer
	Equity investment	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsOperating expensesDepreciation expense	Answer	Answer
	Equity investment	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
[A]	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
	Equity investment	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
[D]	Operating expenses	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
[Igain]	Equity investment	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
[Idep]	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer
	AnswerPPE, netRoyalty agreementEquity incomeConsolidated net income attributable to noncontrolling interestDividendsEquity investmentNoncontrolling interestRetained earningsDepreciation expense	Answer	Answer

Please answer all parts of the question.