Consolidation several years subsequent to date of acquisition-Equity method Assume that a parent company acquired a subsidiary on January 1, 2014. The purchase price was $715,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: Original Original Useful [A] Asset Amount Life Property, plant and equipment (PPE), net $140,000 16 years Patent 245,000 105,000 10 years Goodwill 225,000 Indefinite $715,000 7 years License The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's 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 $1,318,300 Assets Cost of goods sold (3,457,300) (784,700) Cash $719,600 $337,400 Gross profit 1,344,700 533,600 Accounts receivable 1,229,200 303,800 Equity income 139,150 Inventory 1,624,000 389,900 Operating expenses (720,300) (340,200) Equity investment 1,580,550 Net income $763,550 $193,400 Property, plant & equipment 2,923,200 721,000 Statement of retained earnings $8,076,550 $1,752,100 BOY retained earnings 1,694,700 676,200 Liabilities and stockholders' equity Net income 763,550 193,400 Accounts payable $702,800 $124,600 Dividends (374,000) (38,000) 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 1,826,600 109,200 Retained earnings 2,084,250 831,600 $8,076,550 $1,752,100 a. Compute the Equity Investment balance as of January 1, 2016. 0 b. Show the computation to yield the $139,150 equity income reported by the parent for the year ended December 31, 2016. Do not use negative signs with your answers. Subsidiary net income $ Less: Amortization Less: Depreciation 0 $ 0 0 0 0 C. Show the computation to yield the $1,580,550 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 $ Plus: Less: 0 0 Equity investment at 12/31/16 $ 0 0 0 d. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Journal Description Debit Credit [C] 0 0 0 0 0 0 Equity investment [E] Common Stock APIC 0 0 0 0 0 0 0 0 0 0 [A] PPE, net Patent 0 0 Licenses 0 0 0 0 0 0 [D] 0 0 0 0 Patent 0 0 Licenses 0 0 0 0 0 $ 0 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 $1,318,300 $ Cost of goods sold (3,457,300) (784,700) 0 Gross profit 1,344,700 533,600 0 Equity income 139,150 [C 0 0 Operating expenses (720,300) (340,200) [D] 0 0 Net income $763,550 $193,400 $ Statement of retained earnings BOY retained earnings $1,694,700 $676,200 [E] 0 $ 0 Net income 763,550 193,400 0 Dividends (374,000) (38,000) 0 C 0 Ending retained earnings $2,084,250 $831,600 $ Balance sheet Assets Cash $719,600 $337,400 $ 0 Accounts receivable 1,229,200 303,800 0 Inventory 1,624,000 389,900 0 Equity investment 1,580,550 0 [C] 0 0 [E] 0 [A] PPE, net 2,923,200 721,000 [A] 0 O [D] 0 Patent [A] 0 0 [D] 0 Licenses 0 0 [D] 0 Goodwill [A] $8,076,550 $1,752,100 $ Liabilities and equity Accounts payable $702,800 $124,600 $ 0 Accrued liabilities 835,800 163,100 0 Long-term liabilities 2,100,000 436,100 Common stock 527,100 87,500 [E] $ 0 0 APIC 1,826,600 109,200 [E] $ 0 0 Retained earnings 2,084,250 831,600 $8,076,550 $1,752,100 $ 0 $ 0 $ 0 $ [A] O 0 0 0 0 Consolidation several years subsequent to date of acquisition-Equity method Assume that a parent company acquired a subsidiary on January 1, 2014. The purchase price was $715,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: Original Original Useful [A] Asset Amount Life Property, plant and equipment (PPE), net $140,000 16 years Patent 245,000 105,000 10 years Goodwill 225,000 Indefinite $715,000 7 years License The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's 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 $1,318,300 Assets Cost of goods sold (3,457,300) (784,700) Cash $719,600 $337,400 Gross profit 1,344,700 533,600 Accounts receivable 1,229,200 303,800 Equity income 139,150 Inventory 1,624,000 389,900 Operating expenses (720,300) (340,200) Equity investment 1,580,550 Net income $763,550 $193,400 Property, plant & equipment 2,923,200 721,000 Statement of retained earnings $8,076,550 $1,752,100 BOY retained earnings 1,694,700 676,200 Liabilities and stockholders' equity Net income 763,550 193,400 Accounts payable $702,800 $124,600 Dividends (374,000) (38,000) 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 1,826,600 109,200 Retained earnings 2,084,250 831,600 $8,076,550 $1,752,100 a. Compute the Equity Investment balance as of January 1, 2016. 0 b. Show the computation to yield the $139,150 equity income reported by the parent for the year ended December 31, 2016. Do not use negative signs with your answers. Subsidiary net income $ Less: Amortization Less: Depreciation 0 $ 0 0 0 0 C. Show the computation to yield the $1,580,550 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 $ Plus: Less: 0 0 Equity investment at 12/31/16 $ 0 0 0 d. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Journal Description Debit Credit [C] 0 0 0 0 0 0 Equity investment [E] Common Stock APIC 0 0 0 0 0 0 0 0 0 0 [A] PPE, net Patent 0 0 Licenses 0 0 0 0 0 0 [D] 0 0 0 0 Patent 0 0 Licenses 0 0 0 0 0 $ 0 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 $1,318,300 $ Cost of goods sold (3,457,300) (784,700) 0 Gross profit 1,344,700 533,600 0 Equity income 139,150 [C 0 0 Operating expenses (720,300) (340,200) [D] 0 0 Net income $763,550 $193,400 $ Statement of retained earnings BOY retained earnings $1,694,700 $676,200 [E] 0 $ 0 Net income 763,550 193,400 0 Dividends (374,000) (38,000) 0 C 0 Ending retained earnings $2,084,250 $831,600 $ Balance sheet Assets Cash $719,600 $337,400 $ 0 Accounts receivable 1,229,200 303,800 0 Inventory 1,624,000 389,900 0 Equity investment 1,580,550 0 [C] 0 0 [E] 0 [A] PPE, net 2,923,200 721,000 [A] 0 O [D] 0 Patent [A] 0 0 [D] 0 Licenses 0 0 [D] 0 Goodwill [A] $8,076,550 $1,752,100 $ Liabilities and equity Accounts payable $702,800 $124,600 $ 0 Accrued liabilities 835,800 163,100 0 Long-term liabilities 2,100,000 436,100 Common stock 527,100 87,500 [E] $ 0 0 APIC 1,826,600 109,200 [E] $ 0 0 Retained earnings 2,084,250 831,600 $8,076,550 $1,752,100 $ 0 $ 0 $ 0 $ [A] O 0 0 0 0