Chapter 4 | Consolidated Financial Statements and Intercompany Transactions 272 52. Prepare consolidation spreadsheet for intercompany sale of equipment-Equity method LO4 Assume a parent company acquired its subsidiary on January 1. 2016, at a purchase price that was X $500,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date Of that excess, $240,000 was assigned to a Patent, and $150,000 to an unrecorded Customer List owned by the subsidiary. The Patent asset is being depreciated over its 10-year legal life and the Customer List is being amortized over a 5-year period. Amortization is computed on a straight-line basis with no salvage value. The remaining $110,000 of the purchase price was assigned to Goodwill. In January 2018, the parent sold Equipment to its wholly owned subsidiary for a cash price of $160,000. The parent had acquired the equipment at a cost of $185,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The parent had depreci- ated the equipment for 5 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciated the equipment over its remaining 5-year useful life. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019. The parent uses the equity method to account for its Equity Investment. The Customer List and Patent assets were amortized as part of the parent's equity method accounting. Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales. . ... . . .. .. . . .. $6,920,000 $2,500,000 Assets Cost of goods sold . . .. (4,422,000) (1,520,000) Cash . . . . . . . ... $ 160,000 408,000 Gross profit. . . . 2,498,000 980,000 Accounts receivable . . . . . . . . 500,000 605,000 Inventory .... . . .. . ... 840,000 865,000 Income (loss) from subsidiary. . . . . . . . 279,500 0 (1,777,500) (660,000) PPE, net . . ... . . .. . 5,000,000 2,622,000 Operating expenses . . . . Equity investment. . . 2,000,000 Net income . . $1,000,000 $ 320,000 $8,500,000 $4,500,000 Statement of retained earnings: Beginning retained earnings... .. .... $3,290,000 $ 730,000 Liabilities and stockholders' equity Net income . . . . . 1,000,000 320,000 Accounts payable .. .. . . . . . .. . $ 186,000 $ 357.500 Dividends . .. (290,000) (50,000) Other current liabilities . . . . . .. . Long-term liabilities. 570,000 586,000 2,500,000 1,800,000 Ending retained earnings . . .. ... . . . . $4,000,000 $1,000,000 Common stock . . ... APIC . .... ..... .. . . . 493,000 200,000 Retained earnings . . .. . . . . 751,000 556,500 4,000,000 1,000,000 $8,500,000 $4,500,000a. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [!] entries for the year of sale. b. Compute the remaining portion of the deferred gain at January 1, 2019. c. Show the computation to yield the $279,500 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2019. d. Compute the Equity Investment balance of $2,000,000 at December 31, 2019. e. Prepare the consolidation entries for the year ended December 31, 2019. f. Prepare the consolidation spreadsheet for the year ended December 31, 2019