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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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