Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 75 percent controlling interest was $600,000 and the fair value of the 25 percent noncontrolling interest was $200,000. On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill). On January 1, 2015, the retained earnings of the subsidiary was $150,000. On December 31, 2016, the Subsidiary company issued $750,000 (face) 6 percent, five-year bonds to an unaffiliated company for $765,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight line method. This results in annual bond-payable premium amortization equal to $3,000 per year. The following schedule provides the bond-amortization schedule from the initial issuance date. Cash Payment Amortization of Premium Interest Expense Carrying Amount Dec. 31, 2016 $765,000 Dec. 31, 2017 $45,000 $3,000 $42,000 762,000 Dec. 31, 2018 45,000 3,000 42,000 759,000 Dec. 31, 2019 45,000 3,000 42,000 756,000 Dec. 31, 2020 45,000 3,000 42,000 753,000 Dec. 31, 2021 45,000 3,000 42,000 750,000 Year On December 31, 2018, the Parent paid $735,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond- investment discount amortization equal to $5,000 per year. The following schedule provides the bond- amortization schedule for the Parent's bond investment. Year Cash Payment Amortization of Discount Interest Income Carrying Amount $735,000 Dec. 31, 2018 $5,000 740,000 Dec. 31, 2019 Dec. 31, 2020 $45,000 45,000 45,000 5,000 $50,000 50,000 50,000 745,000 750,000 Dec. 31, 2021 5,000 The parent uses the cost method of pre-consolidation investment bookkeeping. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $6,500,000 $800,000 Assets Cost of goods sold (4,500,000) (450,000) Cash $700,000 $300,000 Gross profit 2,000,000 350,000 Accounts receivable 800,000 500,000 Operating and other expenses (1,500,000) (200,000) Inventories 1,000,000 800,000 Bond interest income 50,000 PPE, net 3,000,000 1,250,000 Bond interest expense (42,000) Equity investment 600,000 Total expenses (1,450,000) (242,000) Investment in bond, net 740,000 Income from subsidiary 30,000 $6,840,000 $2,850,000 Net income $580,000 $108,000 Liabilities and stockholders' equity Statement of retained earnings Accounts payable $800,000 $250,000 BOY retained earnings $760,000 $276,000 Other current liabilities 900,000 400,000 Net income 580,000 108,000 Bond payable (net) 756,000 Dividends (200,000) (40,000) Other long-term liabilities 1,400,000 450,000 Ending retained earnings $1,140,000 $344,000 Common stock 600,000 150,000 APIC 2,000,000 500,000 Retained earnings 1,140,000 344,000 6,840,000 2,850,000 Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019. Round answers to the nearest whole number. Debit Credit 0 x 0 07 0 x OX 0 OX 0 O 0 x Consolidation Journal Description [ADJ] Investment in Subsidiary BOY Retained earnings-Parent - [C] Income from subsidiary Income attributable to NCI Dividends-Subsidiary Noncontrolling Interest [E] Common Stock (Subsidiary) APIC (Subsidiary) BOY Retained earnings-Subsidiary Investment in Subsidiary Noncontrolling interest [lbond] Bond payable, net O OX 0 x 0 0 x 0 0 x 0 0 0 x O 0 x 0 x 0 Interest income 0 x 0 Investment in bonds, net 0 OX 0 OX Interest expense Investment in Subsidiary 0 0 x Consolidation Worksheet Subsidiary Debit Parent Credit Consolidated Income Statement Sales $800,000 $ 0 X OX $6,500,000 (4,500,000) 2,000,000 (1,500,000) 50000 Cost of goods sold Gross profit Operating and other expenses Bond interest income (450,000) 350,000 (200,000) 0 X OX [lbond] OX 0 0 x [lbond] 0 (42,000) (242,000) 0 x Bond interest expense Total expenses Income from Subsidiary Consolidated Net Income (1,450,000) 30,000 [C] 0 x 0 580,000 108,000 0 x Income attributable to NCI [C] 0 x OX $580,000 $108,000 $ 0 x $760,000 [E] 0 x 0 x [AD]] $ 0 x Income attributable to Control Int Retained Earnings Statement Beg. Ret. Earnings Income attributable to Control Int Dividends Declared Ending Retained Earnings Balance Sheet 580,000 (200,000) $1,140,000 $276,000 108,000 (40,000) $344,000 0 x [C] OX $ 0 x Cash $700,000 $300,000 0 x Accounts receivable OX 500,000 800,000 Inventories 0 x 800,000 1,000,000 3,000,000 600,000 1,250,000 0 x Property, Plant & Equipment, net Investment in Subsidiary [AD] OX OX [E] 0 0 x [lbond] 0 x [lbond] 0 740,000 $6,840,000 $2,850,000 $800,000 $250,000 $ 0 x OX Investment in Bond (net) Total Assets Accounts Payable Other current liabilities Bond Payable (net) Other long-term liabilities Common Stock 900,000 400,000 0 x OX 0 OX 756,000 [lbond] 450,000 150,000 [E] 500,000 [E] 344,000 0 X 1,400,000 600,000 2,000,000 1,140,000 OX 0 x OX APIC Retained Earnings Noncontrolling Interest 0 x 0 x [C] 0 x OX [E] Total Liabilities and Equity $6,840,000 $2,850,000 $ 0 x $ 0 x $ OX Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 75 percent controlling interest was $600,000 and the fair value of the 25 percent noncontrolling interest was $200,000. On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill). On January 1, 2015, the retained earnings of the subsidiary was $150,000. On December 31, 2016, the Subsidiary company issued $750,000 (face) 6 percent, five-year bonds to an unaffiliated company for $765,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight line method. This results in annual bond-payable premium amortization equal to $3,000 per year. The following schedule provides the bond-amortization schedule from the initial issuance date. Cash Payment Amortization of Premium Interest Expense Carrying Amount Dec. 31, 2016 $765,000 Dec. 31, 2017 $45,000 $3,000 $42,000 762,000 Dec. 31, 2018 45,000 3,000 42,000 759,000 Dec. 31, 2019 45,000 3,000 42,000 756,000 Dec. 31, 2020 45,000 3,000 42,000 753,000 Dec. 31, 2021 45,000 3,000 42,000 750,000 Year On December 31, 2018, the Parent paid $735,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond- investment discount amortization equal to $5,000 per year. The following schedule provides the bond- amortization schedule for the Parent's bond investment. Year Cash Payment Amortization of Discount Interest Income Carrying Amount $735,000 Dec. 31, 2018 $5,000 740,000 Dec. 31, 2019 Dec. 31, 2020 $45,000 45,000 45,000 5,000 $50,000 50,000 50,000 745,000 750,000 Dec. 31, 2021 5,000 The parent uses the cost method of pre-consolidation investment bookkeeping. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $6,500,000 $800,000 Assets Cost of goods sold (4,500,000) (450,000) Cash $700,000 $300,000 Gross profit 2,000,000 350,000 Accounts receivable 800,000 500,000 Operating and other expenses (1,500,000) (200,000) Inventories 1,000,000 800,000 Bond interest income 50,000 PPE, net 3,000,000 1,250,000 Bond interest expense (42,000) Equity investment 600,000 Total expenses (1,450,000) (242,000) Investment in bond, net 740,000 Income from subsidiary 30,000 $6,840,000 $2,850,000 Net income $580,000 $108,000 Liabilities and stockholders' equity Statement of retained earnings Accounts payable $800,000 $250,000 BOY retained earnings $760,000 $276,000 Other current liabilities 900,000 400,000 Net income 580,000 108,000 Bond payable (net) 756,000 Dividends (200,000) (40,000) Other long-term liabilities 1,400,000 450,000 Ending retained earnings $1,140,000 $344,000 Common stock 600,000 150,000 APIC 2,000,000 500,000 Retained earnings 1,140,000 344,000 6,840,000 2,850,000 Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019. Round answers to the nearest whole number. Debit Credit 0 x 0 07 0 x OX 0 OX 0 O 0 x Consolidation Journal Description [ADJ] Investment in Subsidiary BOY Retained earnings-Parent - [C] Income from subsidiary Income attributable to NCI Dividends-Subsidiary Noncontrolling Interest [E] Common Stock (Subsidiary) APIC (Subsidiary) BOY Retained earnings-Subsidiary Investment in Subsidiary Noncontrolling interest [lbond] Bond payable, net O OX 0 x 0 0 x 0 0 x 0 0 0 x O 0 x 0 x 0 Interest income 0 x 0 Investment in bonds, net 0 OX 0 OX Interest expense Investment in Subsidiary 0 0 x Consolidation Worksheet Subsidiary Debit Parent Credit Consolidated Income Statement Sales $800,000 $ 0 X OX $6,500,000 (4,500,000) 2,000,000 (1,500,000) 50000 Cost of goods sold Gross profit Operating and other expenses Bond interest income (450,000) 350,000 (200,000) 0 X OX [lbond] OX 0 0 x [lbond] 0 (42,000) (242,000) 0 x Bond interest expense Total expenses Income from Subsidiary Consolidated Net Income (1,450,000) 30,000 [C] 0 x 0 580,000 108,000 0 x Income attributable to NCI [C] 0 x OX $580,000 $108,000 $ 0 x $760,000 [E] 0 x 0 x [AD]] $ 0 x Income attributable to Control Int Retained Earnings Statement Beg. Ret. Earnings Income attributable to Control Int Dividends Declared Ending Retained Earnings Balance Sheet 580,000 (200,000) $1,140,000 $276,000 108,000 (40,000) $344,000 0 x [C] OX $ 0 x Cash $700,000 $300,000 0 x Accounts receivable OX 500,000 800,000 Inventories 0 x 800,000 1,000,000 3,000,000 600,000 1,250,000 0 x Property, Plant & Equipment, net Investment in Subsidiary [AD] OX OX [E] 0 0 x [lbond] 0 x [lbond] 0 740,000 $6,840,000 $2,850,000 $800,000 $250,000 $ 0 x OX Investment in Bond (net) Total Assets Accounts Payable Other current liabilities Bond Payable (net) Other long-term liabilities Common Stock 900,000 400,000 0 x OX 0 OX 756,000 [lbond] 450,000 150,000 [E] 500,000 [E] 344,000 0 X 1,400,000 600,000 2,000,000 1,140,000 OX 0 x OX APIC Retained Earnings Noncontrolling Interest 0 x 0 x [C] 0 x OX [E] Total Liabilities and Equity $6,840,000 $2,850,000 $ 0 x $ 0 x $ OX