Computing the amount of investment income and preparing [I] consolidation entries-Cost method 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 2015 and 2016: 2016 2015 Subsidiary Net Intercompany Inventory Remaining at Receivable Income $1,200,000 $960,000 Inventory Sales Gross Profit % $180,000 $120,000 End of Year 15% 18% (Payable) $60,000 $48,000 34% 30% Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $900,000 in dividends during 2016. a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment? b. Prepare the required [1] consolidation entries for 2016. [Icogs] Consolidation Journal Description To recognize prior year profit on intercompany sales. [Isales] To eliminate intercompany sales. [Icogs] [Ipayl To defer current period profit on intercompany sales. To eliminate intercompany receivables/payables. Debit Credit