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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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