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 2012 and 2013: Subsidiary Intercompany Gross Profit Net Inventory on Unsold Receivable Income Sales Inventories (Payable) 2013 $300,000 $54,000 $16,000 $22.000 2012 $200,000 $44,000 $15,500 $17,000 Assume that inventory not remaining at the end of the year was sold outside of the consolidated group. a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity method of accounting for its Equitylnvestment? Assume the parent company uses the full equity method to account for its subsidiary. $ 299,500 Credit 0 . 15,500 b. Prepare the required (O consolidation journal entries for 2013. Consolidation Spreadsheet Description Debit [lcogs] Investment in subsidiary 15,500 Cost of goods sold 0 To recognize deferred profit on prior year's sale. [lsales) Sales 50,000 x Cost of goods sold [lcogs] Cost of goods sold 16,000 Inventory . 0 To celer gross profil on the intercompany sale. [loayl Accounts payable 22,000 Accounts receivable 0 0 50,000 X 16,000 22,000