c. Prepare the consolidation journal entries for the year ended December 31, 2013. Debit Credit [C] 0 0 Consolidation Worksheet Description Income (loss) from subsidiary Dividends Equity investment Common stock 0 14251 0 [E] O O O 0 0 APIC BOY retained earnings Equity investment 0 0 0 0 [A] PPE net 0 0 Customer list 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Royalty agreement Goodwill Equity investment [D] Operating expenses PPE net Customer list Royalty agreement [lcogs] Equity investment Cost of goods sold To recognize deferred profit on prior year's sale. [lsales) Sales Cost of goods sold [lcogs] Cost of goods sold Inventory To defer gross profit on the intercompany sale. [lpay] Accounts payable - Accounts receivable 0 0 O O O O oooo 0 o o 0 d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate. Elimination Entries Dr Cr Parent Sub Consolidated Income statement: Sales Cost of goods sold 0 $ 0 $4,370,000 $787,000 [lsales] (3,059,000) (469,800) [lcogs) 0 o [lcogs 0 0 [lsales) $ 0 0 0 1,311,000 317,200 71,837 (830,300) (203,580) $552,537 $113,620 [C] [ [D] 0 0 $ 0 [E] 0 $ 0 Gross profit Income (loss) from subsidiary Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends EOY retained earnings Balance sheet: : Assets Cash 0 $2,195,488 $404,550 552,537 113,620 (130,164) (14,251) $2,617,861 $503,919 0 [C] 0 $ 0 $ 0 Accounts receivable 0 $650,639 $257,087 559,360 181,656 847,780 233,334 4,078,084 431,694 0 [lpay 0 [lcogs] 0 [D] 0 0 0 0 0 0 Inventory PPE, net Customer List Royalty agreement Goodwill Equity investment [A] [A] [A] [A] [lcogs) [D] [D] 0 0 0 0 0 962, 189 0 0 [C] 0 0 [E] 0 [A] $7,098,052 $1,103,771 $ 0 0 $ 0 0 Liabilities and stockholders' equity Accounts payable Other currentliabilities Long-term liabilities Common stock APIC 0 $327,313 $93,459 [lpay] 403,228 127,943 2,500,000 261,000 714,495 52,200 [E] 535,155 65,250 [E] E 2,617,861 503,919 $7,098,052 $1,103,771 0 0 0 0 Retained earnings 0 $ 0 $ 0 $ 0 Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2010. The purchase price was $500,000 million in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following AAP assets: Original Original Useful AAP Asset Amount Life (years) Property, plant and equipment (PPE), net $100,000 20 Customer list 185,000 10 Royalty agreement 115,000 10 Goodwill 100,000 indefinite $500,000 The AAP assets with a definite useful life have been amortized as part of the parent's equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013: Gross Profit Remaining Inventory in Unsold Sales Inventory $68,000 $19,180 $43,700 $12,397 Receivable (Payable) $27,000 $13,037 2013 2012 The inventory not remaining at the end of the year has been sold to unaffiliated entities outside of the consolidated group. The parent uses the equity method to account for its Equity Investment. The financial statements of the parent and its subsidiary for the year ended December 31, 2013, follow in part d. below. a. Show the computation to yield the pre-consolidation $71,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Net income of subsidiary Plus: Prior year intercompany gross profit Less: Current year intercompany gross profit AAP depreciation Income (loss) from subsidiary 110,377 14,400 (24,000) (420,000) 0 b. Show the computation to yield the Equity Investment balance of $962,189 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate. Common stock 52,200 65,250 0 0 APIC Retained earnings BOY unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends 0 0 0 Equity investment 0