Consolidation at the end of the first year subsequent to date of acquisition-Equity method (purchase price equals book value) Assume that a parent company acquires its subsidiary on January 1, 2016, by exchanging 40,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $28 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 subsidiary's 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 $ 2,960,000 $1,680,000 Assets See Cost of goods sold (2,072,000) (1,008,000) Cash $ 701,920 $ 432,0.90 Gross profit B88,000 672.000 Accounts receivable 378,880 389,760 Equity income 235,200 Inventory 574,240 500,640 Operating expenses (562,400) (436,200) Equity investment 1.319.920 $ 560,800 $ 235,200 Property, plant & equipment 2,170,240 926,240 Statement of retained earnings $ 5,145,200 $2,249,520 1,881,600 868,000 Liabilities and stockholders' equily 560,800 235,200 Accounts payable $ 216,640 $ 160,160 Dividends (112.160) (35,280) Accrued liabilities 257,520 209,440 Ending retained earnings $ 2,330,240 $ 1,067,920 Long-term liabilities 560,000 Common stock 414,400 112,000 APIC 1.926,400 140,000 Retained earnings 2,330,240 1,067,920 $5,145,200 $2,249,520 Net income BOY retained earnings Net income a. Prepare the journal entry to record the acquisition of the subsidiary. General Journal Description Debit Credit Equity investment 240,200 x Equity income 40,280 x Additional paid in capital 199,920 x b. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,319,920 Do not use negative signs with your answers Equity investimental 1/1/15 180.000 X Plus Equity income 112.000 x Less: Dividend . 4,000 - Equity investment al 12/31/16 1,160.000 c. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Journal Description Dab Credit Equity income OX Equity investment + O Equity investment OX Commons | APIE Common stock Equity investment OX d. Prepare the consolidated spreadsheet for the year ended December 31, 2016. Use negative signs with answers in the Consolidated column for reductions (Cost of goods sold, Operating expenses and Dividends). Comollidation Worksheet Parent Subsidiary Dr Consolidated Income statement 52,560,000 $160,000 3 Cost also 12,012.000 1.000.000 Groot ,000 6/2.000 OX Equity in 235,200 IC ON rutr 1562,4001 (436,8001 OX Nein $560,00 52.3.200 5 Statement of retained earnings BOY 51,521,500 5868,000 ON 5 OX Nunc 560,300 255,200 1112, 1501 Raja0| ONIC Ending and 52,330,240 $1,067,220 5 Balance sheet: A 5 Accounts receivable 5701,20 378,890 514140 1,310,000 5432,880 389,160 500,640 Equity Westen OXIC ONE 5 5 OX Property, plant and equipment (PPE), el 2,170,240 55,145,200 $2.242,520 Lubochowity Accounts payable $216,640 5160,160 Accrued abilities 209,440 Longer bis 550,000 Common stock 414,400 112.000 APIL 140.000 2,330,2401067,920 55,145,200 $2.242,920 OX OX ON ON OX ONS ON
