Assume that a parent company acquires its subsidiary on January $1,2022,$ by exchanging $30,000$ shares of its $$1$ par value Common Stock, with a market value on the acquisition date of $$17$ 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. The parent uses the equity method of pre$-$consolidation Equity investment bookkeeping. Following are financial statements of the parent and its subsidiary for the year ended December $31,2022.$

Parent Subsidiary Parent Subsidiary

Income statement Balance sheet

Sales $ $2,550,000$ $ $1,479,000$ Assets

Cost of goods sold $(1,360,000)(816,000)$ Cash $ $204,000$ $ $85,000$

Gross profit $1,190,000663,000$ Accounts receivable $340,000306,000$

Equity income $153,000-$ Inventory $527,000365,500$

Operating expenses $(1,020,000)(510,000)$ Equity investment $620,500-$

Net income $ $323,000$ $ $153,000$

Property, plant & equipment $1,445,000714,000$

Statement of retained earnings $ $3,136,500$ $ $1,470,000$

BOY retained earnings $850,00085,000$ Liabilities and stockholders' equity

Net income $323,000153,000$ Accounts payable $ $212,500$ $ $136,000$

Dividends $(119,000)(42,500)$ Accrued liabilities $255,000204,000$

Ending retained earnings $ $1,054,000$ $ $195,500$ Long$-$term liabilities $-510,000$

Common stock $425,000170,000$

APIC $1,190,000255,000$

Retained earnings $1,054,000195,500$

$ $3,136,500$ $ $1,470,500$

a$.$ Prepare the journal entry to record the acquisition of the subsidiary.

General Journal

Description Debit Credit

Answer $1$

Answer $2$

Answer $3$

Answer $4$

Answer $5$

Answer $6$

Additional paid in capital

Answer $7$

Answer $8$

b$.$ Show the computations to yield the Equity Investment reported by the parent in the amount of $$620,500$

Do not use negative signs with your answers.

Equity investment at $1/1/22$

Answer $9$

Answer $10$

Answer $11$

Answer $12$

Answer $13$

Equity investment at $12/31/22$

Answer $14$

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

Consolidation Journal

Description Debit Credit

$[$C$]$

Answer $15$

Answer $16$

Answer $17$

Answer $18$

Answer $19$

Answer $20$

Equity investment

Answer $21$

Answer $22$

$[$E$]$ Common stock

Answer $23$

Answer $24$

APIC

Answer $25$

Answer $26$

Answer $27$

Answer $28$

Answer $29$

Answer $30$

Answer $31$

Answer $32$

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

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 $$2,550,000$ $$1,479,000$

Answer $33$

Cost of goods sold $(1,360,000)(816,000)$

Answer $34$

Gross profit $1,190,000663,000$

Answer $35$

Equity income $153,000[$C$]$

Answer $36$

Answer $37$

Operating expenses $(1,020,000)(510,000)$

Answer $38$

Net income $$323,000$ $$153,000$

Answer $39$

Statement of retained earnings:

BOY retained earnings $$850,000$ $$85,000[$E$]$

Answer $40$

Answer $41$

Net income $323,000153,000$

Answer $42$

Dividends $(119,000)(42,500)$

Answer $43$

$[$C$]$

Answer $44$

Ending retained earnings $$1,054,000$ $$195,500$

Answer $45$

Balance sheet:

Assets

Cash $$204,000$ $$85,000$

Answer $46$

Accounts receivable $340,000306,000$

Answer $47$

Inventory $527,000365,500$

Answer $48$

Equity investment $620,500$

Answer $49$

$[$C$]$

Answer $50$

Answer $51$

$[$E$]$

Property, plant and equipment $($PPE$),$ net $1,445,000714,000$

Answer $52$

$$3,136,500$ $$1,470,500$

Answer $53$

Liabilities and stockholders$$ equity

Accounts payable $$212,500$ $$136,000$

Answer $54$

Accrued liabilities $255,000204,000$

Answer $55$

Long$-$term liabilities $-510,000$

Answer $56$

Common stock $425,000170,000[$E$]$

Answer $57$

Answer $58$

APIC $1,190,000255,000[$E$]$

Answer $59$

Answer $60$

Retained earnings $1,054,000195,500$

Answer $61$

$$3,136,500$ $$1,470,500$

Answer $62$

Answer $63$

Answer $64$