Computing the amount of investment income and preparing [l] 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: Inventory Subsidiary Net Intercompany Remaining at Receivable Income Inventory Sales Gross Profit % End of Year (Payable) 2016 51,200,000 $180,000 34% 15% $60,000 2015 5960,000 5120,000 30% 18% $48.000 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? $ 900,000 Credit 0 64,800 x b. Prepare the required consolidation entries for 2016, Consolidation Journal Description Debit [lcogs] Investment in subsidiary 64,800 X x Cost of goods sold To recognize prior year profit on intercompany sales. [lsales) Sales 180,000 Cost of goods sold 0 To eliminate intercompany sales. [lcogs] Cast of goods sold 9,180 Inventory To defer current period profit on intercompany sales. [payAccounts payable 60,000 Accounts receivable To eliminate intercompany receivables/payables. 180,000 9.180 0 60,000