Question
C2. Parent acquired Subsidiary on January 2, 2019 at a price $400,000 in excess of book value. Of that excess, $160,000 was allocated to an
C2. Parent acquired Subsidiary on January 2, 2019 at a price $400,000 in excess of book value. Of that excess, $160,000 was allocated to an unrecorded Customer List with a 8-year life, with the remainder to Goodwill. The parent uses the equity method to account for its investment in its subsidiary.
On January2, 2022, Subsidiary sold equipment to Parent for $120,000. The equipment had a cost of $85,000 and accumulated depreciation of $40,000. The remaining life of the equipment was estimated at 8 years. Financial statements for the two companies for the year ended December 31, 2023 are presented below.
Parent | Subsidiary | |
Sales revenue | $687,000 | $750,000 |
Cost of goods sold | -425,000 | -350,000 |
Gross profit | 262,000 | 400,000 |
Operating expenses | -125,000 | -36,700 |
Income (loss) from subsidiary | 352,675 | _________ |
Net Income | $489,675 | $363,300 |
Retained Earnings, 1/1/23 | $620,400 | $240,000 |
Net income | 489,675 | 363,300 |
Dividends | -98,000 | -12,000 |
Retained Earnings, 12/31/23 | $1,012,075 | $591,300 |
Cash and receivables | $850,000 | $750,000 |
Inventory | 125,000 | 265,000 |
Equity investment | 1,249,450 | |
Property, plant & equipment (Net) | 1,387,625 | 1,337,860 |
Total Assets | $3,612,075 | $2,352,860 |
Accounts payable | $55,000 | $311,210 |
Accrued liabilities | 450,000 | 370,650 |
Notes payable | 1,250,000 | 665,300 |
Common stock | 95,000 | 183,950 |
Additional paid-in capital | 750,000 | 230,450 |
Retained Earnings, 12/31/23 | 1,012,075 | 591,300 |
Total Liabilities and Equities | $3,612,075 | $2,352,860 |
Required:
1. Prepare entries required under the equity method on Parent's pre-consolidation books for 2023.
2. Prepare the consolidation entries for 2023.
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