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 2018 and 2019: % Inventory Subsidiary Net Intercompany Remaining at Receivable Income Inventory Sales Gross Profit % End of Year (Payable) 2019 $900,000 $135,000 3096 2096 $45,000 2018 $720,000 $108,000 3596 $36,000 15% Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $540,000 in dividends during 2019. a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2019 assuming that it uses the cost method of accounting for its Equity Investment? $ 540,000 b. Prepare the required [l] consolidation entries for 2019. Debit 0 Credit 0 0 Ox 0 0 0 X 0x 07 Consolidation Journal Description [lcogs] Investment in subsidiary Cost of goods sold To recognize prior year profit on intercompany sales. [lsales] Sales Cost of goods sold . To eliminate intercompany sales. [lcogs] Cost of goods sold Inventory e To defer current period profit on intercompany sales. [Ipay] Accounts payable Accounts receivable To eliminate intercompany receivables/payables. 0 X 0 0 0 X 45,000 0 45,000