Question
Consolidation several years subsequent to date of acquisitionEquity method Assume that a parent company acquired a subsidiary on January 1, 2014. The purchase price was
Consolidation several years subsequent to date of acquisitionEquity method Assume that a parent company acquired a subsidiary on January 1, 2014. The purchase price was $815,000 in excess of the subsidiarys book value of Stockholders Equity on the acquisition date, and that excess was assigned to the following [A] assets:
[A] Asset | Original Amount | Original Useful Life | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Property, plant and equipment (PPE), net | $140,000 | 16 | years | |||||||||
Patent | 245,000 | 7 | years | |||||||||
License | 105,000 | 10 | years | |||||||||
Goodwill | 325,000 | Indefinite | ||||||||||
$815,000 |
The [A] assets with definite useful lives have been depreciated or amortized as part of the parents preconsolidation equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, are as follows:
Parent | Subsidiary | Parent | Subsidiary | |||
---|---|---|---|---|---|---|
Income statement | Balance sheet | |||||
Sales | $4,802,000 | $1,348,300 | Assets | |||
Cost of goods sold | (3,457,300) | (784,700) | Cash | $719,600 | $337,400 | |
Gross profit | 1,344,700 | 563,600 | Accounts receivable | 1,229,200 | 303,800 | |
Equity income | 169,150 | - | Inventory | 1,624,000 | 389,900 | |
Operating expenses | (720,300) | (340,200) | Equity investment | 1,680,550 | - | |
Net income | $793,550 | $223,400 | Property, plant & equipment | 2,923,200 | 721,000 | |
Statement of retained earnings | $8,176,550 | $1,752,100 | ||||
BOY retained earnings | 1,694,700 | 676,200 | Liabilities and stockholders' equity | |||
Net income | 793,550 | 223,400 | Accounts payable | $702,800 | $124,600 | |
Dividends | (404,000) | (68,000) | Accrued liabilities | 835,800 | 163,100 | |
Ending retained earnings | $2,084,250 | $831,600 | Long-term liabilities | 2,100,000 | 436,100 | |
Common stock | 527,100 | 87,500 | ||||
APIC | 1,926,600 | 109,200 | ||||
Retained earnings | 2,084,250 | 831,600 | ||||
$8,176,550 | $1,752,100 |
a. Compute the Equity Investment balance as of January 1, 2016.
$Answer
b. Show the computation to yield the $169,150 equity income reported by the parent for the year ended December 31, 2016.
Do not use negative signs with your answers.
Subsidiary net income | Answer | |
Less: Amortization | Answer | |
Less: Depreciation | Answer | Answer |
Answer |
c. Show the computation to yield the $1,680,550 Equity Investment account balance reported by the parent at December 31, 2016.
Do not use negative signs with your answers.
Equity investment at 1/1/16 | Answer | |
AnswerDividendsEquity incomeEquity investmentGoodwillOperating expensesPPE, netRetained earnings | Answer | |
AnswerDividendsEquity incomeEquity investmentGoodwillOperating expensesPPE, netRetained earnings | Answer | Answer |
Equity investment at 12/31/16 | Answer |
d. Prepare the consolidation entries for the year ended December 31, 2016.
Consolidation Journal | |||
---|---|---|---|
Description | Debit | Credit | |
[C] | AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer |
AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
Equity investment | Answer | Answer | |
[E] | Common Stock | Answer | Answer |
APIC | Answer | Answer | |
AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
[A] | PPE, net | Answer | Answer |
Patent | Answer | Answer | |
Licenses | Answer | Answer | |
AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
[D] | AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer |
AnswerDividendsEquity incomeEquity investmentGoodwillNet incomeOperating expensesPPE, netRetained earnings | Answer | Answer | |
Patent | Answer | Answer | |
Licenses | Answer | Answer |
e. Prepare the consolidated spreadsheet for the year ended December 31, 2016.
Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.
Consolidation Worksheet | ||||||||
---|---|---|---|---|---|---|---|---|
Parent | Subsidiary | Debit | Credit | Consolidated | ||||
Income statement | ||||||||
Sales | $4,802,000 | $1,348,300 | Answer | |||||
Cost of goods sold | (3,457,300) | (784,700) | Answer | |||||
Gross profit | 1,344,700 | 563,600 | Answer | |||||
Equity income | 169,150 | - | [C] | Answer | Answer | |||
Operating expenses | (720,300) | (340,200) | [D] | Answer | Answer | |||
Net income | $793,550 | $223,400 | Answer | |||||
Statement of retained earnings | ||||||||
BOY retained earnings | $1,694,700 | $676,200 | [E] | Answer | Answer | |||
Net income | 793,550 | 223,400 | Answer | |||||
Dividends | (404,000) | (68,000) | Answer | [C] | Answer | |||
Ending retained earnings | $2,084,250 | $831,600 | Answer | |||||
Balance sheet | ||||||||
Assets | ||||||||
Cash | $719,600 | $337,400 | Answer | |||||
Accounts receivable | 1,229,200 | 303,800 | Answer | |||||
Inventory | 1,624,000 | 389,900 | Answer | |||||
Equity investment | 1,680,550 | - | Answer | [C] | Answer | |||
Answer | [E] | |||||||
Answer | [A] | |||||||
PPE, net | 2,923,200 | 721,000 | [A] | Answer | Answer | [D] | Answer | |
Patent | [A] | Answer | Answer | [D] | Answer | |||
Licenses | [A] | Answer | Answer | [D] | Answer | |||
Goodwill | - | - | [A] | Answer | Answer | |||
$8,176,550 | $1,752,100 | Answer | ||||||
Liabilities and equity | ||||||||
Accounts payable | $702,800 | $124,600 | Answer | |||||
Accrued liabilities | 835,800 | 163,100 | Answer | |||||
Long-term liabilities | 2,100,000 | 436,100 | Answer | |||||
Common stock | 527,100 | 87,500 | [E] | Answer | Answer | |||
APIC | 1,926,600 | 109,200 | [E] | Answer | Answer | |||
Retained earnings | 2,084,250 | 831,600 | - | - | Answer | |||
$8,176,550 | $1,752,100 | Answer | Answer | Answer |
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