Assume that a parent company acquired a subsidiary on January 1, 2012 for $892,000. The purchase price was $359,000 in excess of the book value of the subsidiarys Stockholders Equity on the acquisition date. On the acquisition date, the subsidiarys stockholders equity was comprised of $390,000 of no-par common stock and $143,000 of retained earnings. The Acquisition Accounting Premium (AAP) was assigned as follows: an increase of $33,000 in accounts receivable that were entirely collected during the year after acquisition, an increase of $65,000 for property, plant and equipment that has 10 years of remaining useful life, $124,000 for an unrecorded patent with an 8-year remaining life and $137,000 for goodwill. All amortizable components of the AAP are amortized using the straight-line method.

On January 1, 2014, the parent sold Equipment to the subsidiary for a cash price of $134,700. The parent had acquired the equipment at a cost of $130,800 and depreciated the equipment over its 12-year useful life using the straight-line method (no salvage value). The parent had depreciated the equipment for 2 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Following are financial statements of the parent and its subsidiary as of December 31, 2016. The parent uses the cost method of pre-consolidation investment bookkeeping.

				Parent		Subsidiary								Parent		Subsidiary
Income statement									Balance sheet
Sales				$1,300,000		$598,000			Assets
Cost of goods sold				(715,000)		(364,000)			Cash					$117,000		$78,000
Gross profit				585,000		234,000			Accounts receivable					156,000		117,000
Deprec. & amort. Expense				(39,000)		(26,000)			Inventory					364,000		182,000
Operating expenses				(390,000)		(104,000)			Equity investment					892,000		-
Interest expense				(19,500)		(6,500)			Property, plant & equipment					442,000		312,000
Total expenses				(448,500)		(136,500)			Other assets					169,000		286,000
Income (loss) from subsidiary				45,500		-			Total assets					2,140,000		$975,000
Net income				$182,000		$97,500			Liabilities and stockholders' equity
									Accounts payable					$325,000		$70,200
Statement of retained earnings									Accrued liabilities					32,500		59,800
BOY retained earnings				$715,000		$325,000			Notes payable					195,000		78,000
Net income				182,000		97,500			Common stock					840,000		390,000
Dividends				(149,500)		(45,500)			Retained earnings					747,500		377,000
Ending retained earnings				$747,500		$377,000			Total liabilities and equity					2,140,000		$975,000

a. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [I] entries for the year of sale.

Parent

General Journal
Description	Debit	Credit
Cash	Answer	Answer
AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
Equipment	Answer	Answer
To record sale of equipment

Subsidiary

General Journal
Description	Debit	Credit
AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
To record purchase of equipment.

Consolidation Journal
	Description	Debit	Credit
[Igain]	AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
	AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
	Accumulated depreciation	Answer	Answer
[Idep]	AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer
	AnswerCashAccumulated depreciationGain on sale of equipmentEquipmentDepreciation expense	Answer	Answer

b. Compute the remaining portion of the deferred gain at January 1, 2016.

$Answer

c. Prior to preparing consolidated financial statements, compute the amount of net income the parent would have reported for the year ended December 31, 2016 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping.

$Answer

d. Prior to preparing consolidated financial statements, compute the amount of Equity investment the parent would have reported on December 31, 2016 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping.

Do not use negative signs with your answers below.

Equity Investment ("as if" Equity Method)
Common Stock (S) @ EOY		Answer
Retained Earnings (S) @ EOY		Answer
Add:	AnswerUnamortized AAP @ EOYUnconfirmed gain @ EOY	Answer
Deduct:	AnswerUnamortized AAP @ EOYUnconfirmed gain @ EOY	Answer
EOY Investment ("as if" equity method)		Answer

e. Prepare the consolidation entries for the year ended December 31, 2016.

Consolidation Journal
	Description	Debit	Credit
[ADJ]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[C]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[E]	BOY Common stock (Subsidiary)	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[A]	PPE, net	Answer	Answer
	Patent	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[D]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	Patent	Answer	Answer
[Igain]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[Idep]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer