Assume that a parent company acquires its subsidiary on January 1, 2016, by exchanging 40,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's assets and liabilities had fair values equaling their book values. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016. Parent Subsidiary Income statement Balance sheet Sales $ 2,960,000 $ 1,687,000 Assets Cost of goods sold (2,072,000) (1,008,000) Cash $ 708,920 $ 432,880 Gross profit 888,000 679,000 Accounts receivable 378,880 469,760 Equity income 242,200 - Inventory 574,240 500,640 Operating expenses (562,400) (436,800) Equity investment 1,399,920 - Net income $ 567,800 $ 242,200 Property, plant & equipment 2,170,240 926,240 Statement of retained earnings $ 5,232,200 $ 2,329,520 BOY retained earnings 1,881,600 868,000 Liabilities and stockholders' equity Net income 567,800 242,200 Accounts payable $ 216,640 $ 160,160 Dividends (112,160) (42,280) Accrued liabilities 257,520 209,440 Ending retained earnings $ 2,337,240 $ 1,067,920 Long-term liabilities - 560,000 Common stock 414,400 112,000 APIC 2,006,400 220,000 Retained earnings 2,337,240 1,067,920 $ 5,232,200 $ 2,329,520 a. Prepare the journal entry to record the acquisition of the subsidiary. General Journal Description Debit Credit Answer Answer Answer Answer Answer Answer Additional paid in capital Answer Answer b. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,399,920. Do not use negative signs with your answers. Equity investment at 1/1/16 Answer Answer Answer Answer Answer Equity investment at 12/31/16 Answer c. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Journal Description Debit Credit [C] Answer Answer Answer Answer Answer Answer Equity investment Answer Answer [E] Common stock Answer Answer APIC Answer Answer Answer Answer Answer Answer Answer Answer d. Prepare the consolidated spreadsheet for the year ended December 31, 2016. Use negative signs with answers in the Consolidated column for reductions (Cost of goods sold, Operating expenses and Dividends). Consolidation Worksheet Parent Subsidiary Dr Cr Consolidated Income statement: Sales $2,960,000 $1,687,000 Answer Cost of goods sold (2,072,000) (1,008,000) Answer Gross profit 888,000 679,000 Answer Equity income 242,200 [C] Answer Answer Operating expenses (562,400) (436,800) Answer Net income $567,800 $242,200 Answer Statement of retained earnings: BOY retained earnings $1,881,600 $868,000 [E] Answer Answer Net income 567,800 242,200 Answer Dividends (112,160) (42,280) Answer [C] Answer Ending retained earnings $2,337,240 $1,067,920 Answer Balance sheet: Assets Cash $708,920 $432,880 Answer Accounts receivable 378,880 469,760 Answer Inventory 574,240 500,640 Answer Equity investment 1,399,920 Answer [C] Answer Answer [E] Property, plant and equipment (PPE), net 2,170,240 926,240 Answer $5,232,200 $2,329,520 Answer Liabilities and stockholders' equity Accounts payable $216,640 $160,160 Answer Accrued liabilities 257,520 209,440 Answer Long-term liabilities - 560,000 Answer Common stock 414,400 112,000 [E] Answer Answer APIC 2,006,400 220,000 [E] Answer Answer Retained earnings 2,337,240 1,067,920 Answer $5,232,200 $2,329,520 Answer Answer Answer