Consolidation at the end of the first year subsequent to date of acquisitionCost method (purchase price equals book value) Assume that the parent company acquires its subsidiary on January 1, 2016, by exchanging 31,500 shares of its $1 par value Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiarys assets and liabilities had fair values equaling their book values. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016.

	Parent	Subsidiary			Parent	Subsidiary
Income statement				Balance sheet
Sales	$3,330,000	$1,890,000		Assets
Cost of goods sold	(2,331,000)	(1,134,000)		Cash	$789,660	$486,990
Gross profit	999,000	756,000		Accounts receivable	426,240	438,480
Equity income	39,690	-		Inventory	646,020	563,220
Operating expenses	(632,700)	(491,400)		Equity investment	1,260,000	-
Net income	$405,990	$264,600		Property, plant & equipment	2,441,556	1,042,020
Statement of retained earnings					$5,563,476	$2,530,710
BOY retained earnings	2,116,800	976,500		Liabilities and stockholders' equity
Net income	405,990	264,600		Accounts payable	$243,756	$180,180
Dividends	(126,180)	(39,690)		Accrued liabilities	289,710	235,620
Ending retained earnings	$2,396,610	$1,201,410		Long-term liabilities	-	630,000
				Common stock	466,200	126,000
				APIC	2,167,200	157,500
				Retained earnings	2,396,610	1,201,410
					$5,563,476	$2,530,710

a. Prepare the journal entry to record the acquisition of the subsidiary.

General Journal
Description	Debit	Credit
Answer

Answer	Answer
Common stock	Answer	Answer
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b. Prepare the consolidation entries for the year ended December 31, 2016.

If no consolidation entry is necessary for a particular step (i.e. ADJ, C, or E), select "No entry" as your answers for the journal descriptions.

Consolidation Journal
	Description	Debit	Credit
[ADJ]	Answer

Answer	Answer
	Answer

Answer	Answer
[C]	Answer

Answer	Answer
	Answer

Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	Answer

Answer	Answer
	Answer

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