Consolidation several years subsequent to date of acquisition-Equity method
Assume a parent company acquired a subsidiary on January 1, 2017. The purchase price was $820,000 in excess of the subsidiary's book value of Stockholder's Equity on the acquisition date, and that the excess was assigned to the following [A] assets:
Original Selected acc ended December Useful Life [A] Asset Property, plant and equipment (PPE), net .... Patent.... License.... Goodwill... Original Amount $240,000 240,000 160,000 180.000 $820,000 12 years 8 years 10 years Indefinite of the parent's pre- ally for impairment, The Al assets with definite useful lives have been depreciated or amortized as part of the paren consolidation equity method accounting, The Goodwill asset has been tested annually for imna and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, as follows: Income states Sales... Cost of goods Gross profit Equity incom Operating es Net income Parent Subsidiary Parent Statement Beginning Net income Dividends Subsidiary Balance sheet: Assets Ending ret Income statement: Sales.......... Cost of goods sold ......... Gross profit. .............. Equity income.............. Operating expenses... Net income $1,300,000 (774,000) 526,000 Cash... $4,800,000 (3,500,000) 1,300,000 120,000 (720,000) $ 700,000 Accounts receivable. Inventory ..................... Equity investment.............. Property, plant and equipment (PPE), net ... Property, plant an (340,000) $ 720,000 1,130,000 1,450,000 1,800,000 2,900,000 $8,000,000 $330.000 280,000 500,000 $ 186,000 780,000 Balance Assets Cash.. Account Inventor Equity is Propert Custom Goodw $1,890,000 Statement of retained earnings: Beginning retained earnings... $1,600,000 Net income.... ..... 700,000 Dividends.... (360,000) Ending retained earnings ..... $1,940,000 $ 680,000 186.000 (36,000) $830,000 Liabilities and stockholders' equity Accounts payable... Accrued liabilities .......... Long-term liabilities. . . . . . . . . . . Common stock ... .................. Retained earnings ......... $ 760,000 840,000 2,150,000 610,000 1,700,000 1,940,000 $8,000,000 $ 122,000 160,000 430,000 190,000 158,000 830,000 $1,890,000 Liabili Accou Acon Long Com APIC Reta a. Compute the Equity Investment balance as of January 1, 2019. b. Show the computation to yield the $120,000 equity income reported by the parent for the year ended December 31, 2019. c. Show the computation to yield the $1,800,000 Equity Investment account balance reported by the parent at December 31, 2019. d. Prepare the consolidation entries for the year ended December 31, 2019. Prepare the consolidation spreadsheet for the year ended December 31, 2019. 1 51 Original Selected acc ended December Useful Life [A] Asset Property, plant and equipment (PPE), net .... Patent.... License.... Goodwill... Original Amount $240,000 240,000 160,000 180.000 $820,000 12 years 8 years 10 years Indefinite of the parent's pre- ally for impairment, The Al assets with definite useful lives have been depreciated or amortized as part of the paren consolidation equity method accounting, The Goodwill asset has been tested annually for imna and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, as follows: Income states Sales... Cost of goods Gross profit Equity incom Operating es Net income Parent Subsidiary Parent Statement Beginning Net income Dividends Subsidiary Balance sheet: Assets Ending ret Income statement: Sales.......... Cost of goods sold ......... Gross profit. .............. Equity income.............. Operating expenses... Net income $1,300,000 (774,000) 526,000 Cash... $4,800,000 (3,500,000) 1,300,000 120,000 (720,000) $ 700,000 Accounts receivable. Inventory ..................... Equity investment.............. Property, plant and equipment (PPE), net ... Property, plant an (340,000) $ 720,000 1,130,000 1,450,000 1,800,000 2,900,000 $8,000,000 $330.000 280,000 500,000 $ 186,000 780,000 Balance Assets Cash.. Account Inventor Equity is Propert Custom Goodw $1,890,000 Statement of retained earnings: Beginning retained earnings... $1,600,000 Net income.... ..... 700,000 Dividends.... (360,000) Ending retained earnings ..... $1,940,000 $ 680,000 186.000 (36,000) $830,000 Liabilities and stockholders' equity Accounts payable... Accrued liabilities .......... Long-term liabilities. . . . . . . . . . . Common stock ... .................. Retained earnings ......... $ 760,000 840,000 2,150,000 610,000 1,700,000 1,940,000 $8,000,000 $ 122,000 160,000 430,000 190,000 158,000 830,000 $1,890,000 Liabili Accou Acon Long Com APIC Reta a. Compute the Equity Investment balance as of January 1, 2019. b. Show the computation to yield the $120,000 equity income reported by the parent for the year ended December 31, 2019. c. Show the computation to yield the $1,800,000 Equity Investment account balance reported by the parent at December 31, 2019. d. Prepare the consolidation entries for the year ended December 31, 2019. Prepare the consolidation spreadsheet for the year ended December 31, 2019. 1 51
