Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2012. On the date of acquisition, the fair value of the 90 percent controlling interest was $720,000 and the fair value of the 10 percent noncontrolling interest was $80,000. On January 1, 2012, 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 December 31, 2013, the Subsidiary company issued $750,000 (face) 7 percent, five-year bonds to an unaffiliated company for $814,942 (i.e., the bonds had an effective yield of 5 percent). 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 $12,988 per year.

On December 31, 2015, the Parent paid $730,672 to purchase all of the outstanding Subsidiary company bonds (i.e., the bonds had an effective yield of 8 percent). The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $6,443 per year.

The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2016:

				Parent		Subsidiary								Parent		Subsidiary
Income statement									Balance sheet
Sales				$6,500,000		$800,000			Assets
Cost of goods sold				(4,750,000)		(520,000)			Cash					$775,000		$500,000
Gross profit				1,750,000		280,000			Accounts receivable					1,125,000		650,000
Equity income				35,008		-			Inventory					1,150,000		843,465
Bond interest income				58,943		-			PPE, net					6,813,500		1,250,000
Bond interest expense						(39,512)			Equity investment					884,402		-
Operating expenses				(1,150,000)		(180,000)			Investment in bonds					737,114		-
Net income				$693,951		$60,488								$11,485,016		$3,243,465
Statement of retained earnings									Liabilities and stockholders' equity
BOY retained earnings				$3,500,000		$225,000			Accounts payable					$750,000		$478,000
Net income				693,951		60,488			Current liabilities					1,000,000		600,000
Dividends				(185,000)		(20,000)			Bonds payable					-		775,977
Ending retained earnings				$4,008,951		$265,488			Long-term liabilities					1,113,065		450,000
									Common stock					1,053,000		149,000
									APIC					3,560,000		525,000
									Retained earnings					4,008,951		265,488
														11,485,016		3,243,465

The parent uses the equity method of pre-consolidation investment bookkeeping. Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2016.

Round answers to the nearest whole number.

Consolidation Journal
	Description	Debit	Credit
[C]	Equity income	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	Investment in Subsidiary	Answer	Answer
	Noncontrolling Interest	Answer	Answer
[E]	Common Stock (Subsidiary)	Answer	Answer
	APIC (Subsidiary)	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	Noncontrolling interest		Answer
[Ibond]	Bond payable (net)	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	Interest expense	Answer	Answer
	Investment in Subsidiary	Answer	Answer

Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributable to NCI and Dividends.

Consolidation Worksheet
		Parent		Subsidiary			Debit		Credit			Consolidated
Income Statement
Sales		$6,500,000		$800,000								$Answer
Cost of goods sold		(4,750,000)		(520,000)								Answer
Gross profit		1,750,000		280,000								Answer
Operating expenses		(1,150,000)		(180,000)								Answer
Bond interest income		58,943		-		[Ibond]	Answer					Answer
Bond interest expense		-		(39,512)					Answer		[Ibond]	Answer
Total expenses		(1,091,057)		(219,512)								Answer
Equity Income from Subsidiary		35,008		-		[C]	Answer					Answer
Consolidated Net Income		693,951		60,488								Answer
Income attributable to NCI		-		-		[C]	Answer					Answer
Income attributable to Control Int		$693,951		$60,488								$Answer
Retained Earnings Statement
Beg. Ret. Earnings		$3,500,000		$225,000		[E]	Answer					Answer
Income attributable to Control Int		693,951		60,488								Answer
Dividends Declared		(185,000)		(20,000)					Answer		[C]	Answer
Ending Retained Earnings		$4,008,951		$265,488								$Answer
Balance Sheet
Cash		$775,000		$500,000								Answer
Accounts receivable		1,125,000		650,000								Answer
Inventories		1,150,000		843,465								Answer
Property, Plant & Equipment, net		6,813,500		1,250,000								Answer
Investment in Subsidiary		884,402		-					Answer		[C]	Answer
									Answer		[E]
									Answer		[Ibond]
Investment in Bond (net)		737,114		-					Answer		[Ibond]	Answer
Total Assets		$11,485,016		$3,243,465								$Answer
Accounts Payable		$750,000		$478,000								Answer
Other current liabilities		1,000,000		600,000								Answer
Bond Payable (net)		-		775,977		[Ibond]	Answer					Answer
Long-term liabilities		1,113,065		450,000								Answer
Common Stock		1,053,000		149,000		[E]	Answer					Answer
APIC		3,560,000		525,000		[E]	Answer					Answer
Retained Earnings		4,008,951		265,488								Answer
Noncontrolling Interest									Answer		[C]	Answer
									Answer		[E]
Total Liabilities and Equity		$11,485,016		$3,243,465			$Answer		$Answer			$Answer