Computing the amount of equity income and preparing [I] consolidation journal entries Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, 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 Net Income	Inventory Sales	Gross Profit %	% Inventory Remaining at End of Year	Receivable (Payable)
2013	$500,000	$75,000	31%	10%	$25,000
2012	$400,000	$50,000	29%	9%	$20,000

Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company uses the full equity method to account for its subsidiary.

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 Equity Investment?

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b. Prepare the required [I] consolidation journal entries for 2013.

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