Computing the amount of equity income and preparing $[$I$]$ consolidation journal entries $-$ Equity method

Assume that a 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 $2021$ and $2022$:

Subsidiary

Net

Income Intercompany

Inventory

Sales Gross Profit

on Unsold

Inventories

Receivable

$($Payable$)$

$2022$ $$640,000$ $$80,000$ $$28,800$ $$32,000$

$2021$ $$480,000$ $$96,000$ $$32,000$ $$40,000$

Assume that inventory not remaining at the end of the year was sold outside of the consolidated group. The subsidiary paid $$130,000$ in dividends during $2022.$

a$.$ How much Income $($loss$)$ from subsidiary should the parent report in its pre$-$consolidation income statement the year ending $2022$ assuming that it uses the equity method of accounting for its Equity Investment?

$Answer $1$

$597,960$

b$.$ Prepare the required $[$I$]$ consolidation journal entries for $2022.$

Consolidation Journal

Description Debit Credit

$[$Icogs$]$ Answer $2$

Investment in subsidiary

Answer $3$

Answer $4$

$0$

Answer $5$

Cost of goods sold

Answer $6$

$0$

Answer $7$

$0$

To recognize deferred profit on prior year's sale.

$[$Isales$]$ Answer $8$

Sales

Answer $9$

$0$

Answer $10$

$0$

Answer $11$

Cost of goods sold

Answer $12$

$0$

Answer $13$

$0$

$[$Icogs$]$ Answer $14$

Cost of goods sold

Answer $15$

$0$

Answer $16$

$0$

Answer $17$

Inventory

Answer $18$

$0$

Answer $19$

$0$

To defer gross profit on the intercompany sale.

$[$Ipay$]$ Answer $20$

Accounts payable

Answer $21$

$0$

Answer $22$

$0$

Answer $23$

Accounts receivable

Answer $24$

$0$

Answer $25$

$0$Computing the amount of equity income and preparing $[$I$]$ consolidation journal entries $-$ Equity method

Assume that inventory not remaining at the end of the year was sold outside of the consolidated group. The subsidiary paid $$130,000$ in dividends during $2022.$

a$.$ How much Income $($loss$)$ from subsidiary should the parent report in its pre$-$consolidation income statement the year ending $2022$ assuming that it uses the equity method of accounting for its Equity Investment?

Prepare the required I consolidation journal entries for $2022.$