Assume a parent company acquired a subsidiary on January $1,2020.$ The purchase price was $$1,148,000$ in excess of the subsidiary$$s book value of Stockholders$$ Equity on the acquisition date, and that excess was assigned to the following $[$A$]$ assets:

$[$A$]$ Asset Original

Amount Original

Useful

Life

Property, plant and equipment $($PPE$),$ net $$336,00012$ years

Patent $336,0008$ years

License $224,00010$ years

Goodwill $252,000$ Indefinite

$$1,148,000$

The $[$A$]$ assets with definite useful lives have been depreciated or amortized as part of the parent$$s preconsolidation equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December $31,2022,$ are as follows:

Parent Subsidiary Parent Subsidiary

Income statement Balance sheet

Sales $$6,720,000$ $$1,820,000$ Assets

Cost of goods sold $(4,900,000)(1,083,600)$ Cash $$1,008,000$ $$462,000$

Gross profit $1,820,000736,400$ Accounts receivable $1,582,000392,000$

Equity income $168,000-$ Inventory $2,030,000700,000$

Operating expenses $(1,008,000)(476,000)$ Equity investment $2,520,000-$

Net income $$980,000$ $$260,400$ Property, plant & equipment, net $4,060,0001,092,000$

Statement of retained earnings $$11,200,000$ $$2,646,000$

BOY retained earnings $2,240,000952,000$ Liabilities and stockholders' equity

Net income $980,000260,400$ Accounts payable $$1,064,000$ $$170,800$

Dividends $(504,000)(50,400)$ Accrued liabilities $1,176,000224,000$

Ending retained earnings $$2,716,000$ $$1,162,000$ Long$-$term liabilities $3,010,000602,000$

Common stock $854,000266,000$

APIC $2,380,000221,200$

Retained earnings $2,716,0001,162,000$

$$11,200,000$ $$2,646,000$

a$.$ Compute the Equity Investment balance as of January $1,2022.$

$Answer $1$

b$.$ Show the computation to yield the $$168,000$ equity income reported by the parent for the year ended December $31,2022.$

Do not use negative signs with your answers.

Subsidiary net income

Less: Amortization

Less: Depreciation

c$.$ Show the computation to yield the $$2,520,000$ Equity Investment account balance reported by the parent at December $31,2022.$

Do not use negative signs with your answers.

Equity investment at $1/1/22$

Equity investment at $12/31/22$

d$.$ Prepare the consolidation entries for the year ended December $31,2022.$

Consolidation Journal

Description Debit Credit

$[$C$]$

Equity investment

$[$E$]$ Common Stock

APIC

$[$A$]$ PPE, net

Patent

Licenses

$[$D$]$

Patent

Licenses

e$.$ Prepare the consolidated spreadsheet for the year ended December $31,2022.$

Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.

Consolidation Worksheet

Parent Subsidiary Debit Credit Consolidated

Income statement

Sales $$6,720,000$ $$1,820,000$

Cost of goods sold $(4,900,000)(1,083,600)$

Gross profit $1,820,000736,400$

Equity income $168,000-[$C$]$

Operating expenses $(1,008,000)(476,000)[$D$]$

Net income $$980,000$ $$260,400$

Statement of retained earnings

BOY retained earnings $$2,240,000$ $$952,000[$E$]$

Net income $980,000260,400$

Dividends $(504,000)(50,400)[$C$]$

Ending retained earnings $$2,716,000$ $$1,162,000$

Balance sheet

Assets

Cash $$1,008,000$ $$462,000$

Accounts receivable $1,582,000392,000$

Inventory $2,030,000700,000$

Equity investment $2,520,000-[$C$]$

$[$E$]$

$[$A$]$

PPE, net $4,060,0001,092,000[$A$][$D$]$

Patent $[$A$][$D$]$

Licenses $[$A$][$D$]$

Goodwill $--[$A$]$

$$11,200,000$ $$2,646,000$

Liabilities and equity

Accounts payable $$1,064,000$ $$170,800$

Accrued liabilities $1,176,000224,000$

Long$-$term liabilities $3,010,000602,000$

Common stock $854,000266,000[$E$]$

APIC $2,380,000221,200[$E$]$

Retained earnings $2,716,0001,162,000--$

$$11,200,000$ $$2,646,000$