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 subsidiarys 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				1,190,000		663,000			Accounts receivable					340,000		306,000
Equity income				153,000		-			Inventory					527,000		365,500
Operating expenses				(1,020,000)		(510,000)			Equity investment					620,500		-
Net income				$ 323,000		$ 153,000			Property, plant & equipment					1,445,000		714,000
Statement of retained earnings														$ 3,136,500		$ 1,470,000
BOY retained earnings				850,000		85,000			Liabilities and stockholders' equity
Net income				323,000		153,000			Accounts payable					$ 212,500		$ 136,000
Dividends				(119,000)		(42,500)			Accrued liabilities					255,000		204,000
Ending retained earnings				$ 1,054,000		$ 195,500			Long-term liabilities					-		510,000
									Common stock					425,000		170,000
									APIC					1,190,000		255,000
									Retained earnings					1,054,000		195,500
														$ 3,136,500		$ 1,470,500

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

General Journal
Description	Debit	Credit
Common stockDividendsEquity incomeEquity investmentRetained earnings
Common stockDividendsEquity incomeEquity investmentRetained earnings
Additional paid in capital

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
Common stockDividendsEquity incomeEquity investmentRetained earnings
Common stockDividendsEquity incomeEquity investmentRetained earnings
Equity investment at 12/31/22

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

Consolidation Journal
	Description						Debit	Credit
[C]	Common stockDividendsEquity incomeEquity investmentRetained earnings
	Common stockDividendsEquity incomeEquity investmentRetained earnings
	Equity investment
[E]	Common stock
	APIC
	Common stockDividendsEquity incomeEquity investmentRetained earnings
	Common stockDividendsEquity incomeEquity investmentRetained earnings

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
Cost of goods sold	(1,360,000)	(816,000)
Gross profit	1,190,000	663,000
Equity income	153,000		[C]
Operating expenses	(1,020,000)	(510,000)
Net income	$323,000	$153,000
Statement of retained earnings:
BOY retained earnings	$850,000	$85,000	[E]
Net income	323,000	153,000
Dividends	(119,000)	(42,500)				[C]
Ending retained earnings	$1,054,000	$195,500
Balance sheet:
Assets
Cash	$204,000	$85,000
Accounts receivable	340,000	306,000
Inventory	527,000	365,500
Equity investment	620,500					[C]
						[E]
Property, plant and equipment (PPE), net	1,445,000	714,000
	$3,136,500	$1,470,500
Liabilities and stockholders equity
Accounts payable	$212,500	$136,000
Accrued liabilities	255,000	204,000
Long-term liabilities	-	510,000
Common stock	425,000	170,000	[E]
APIC	1,190,000	255,000	[E]
Retained earnings	1,054,000	195,500
	$3,136,500	$1,470,500