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 $665,000 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 7 years License 105,000 10 years Goodwill 175,000 Indefinite $665,000 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 Balance statement sheet Sales $4,802,000 $1,308,300 Assets Cost of goods sold (3,457,300) (784,700) Cash $719,600 $337,400 Accounts Gross profit 1,344,700 523,600 receivable 1,229,200 303,800 Equity income 129,150 - Inventory 1,624,000 389,900 Operating Equity expenses (720,300) (340,200) investment 1,530,550 Property plant & Net income $753,550 $183,400 equipment 2,923,200 721,000 Property plant & $183,400 equipment Net income $753,550 2,923,200 721,000 Statement of retained earning $8,026,550 $1,752,100 BOY retained earnings 1,694,700 Liabilities and stockholders' 676,200 equity Accounts 183,400 payable Accrued (28,000) liabilities Net income 753,550 $702,800 $124,600 (364,000) 835,800 163,100 Dividends Ending retained earnings $2,084,250 2,100,000 436,100 Long-term $831,600 liabilities Common stock APIC 527,100 1,776,600 87,500 109,200 Retained earnings 2,084,250 831,600 $8,026,550 $1,752,100 a. Compute the Equity Investment balance as of January 1, 2016. $ 1,529,400 b. Show the computation to yield the $129,150 equity income reported by the parent for the year ended December 31, 2016. Do not use negative signs with your answers. $ 183,400 Subsidiary net income Less: Amortization Less: Depreciation 0 0 0 C. Show the computation to yield the $1,530,550 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: Equity investment at 12/31/16 0 0 0 D 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 [A] PPE, net 0 0 Patent 0 0 Licenses 0 0 0 0 0 0 [D] 0 0 0 0 Patent 0 0 Licenses 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 $1,308,300 $ 0 Cost of goods sold (3,457,300) (784,700) 0 Gross profit 1,344,700 523,600 0 Equity income 129,150 [ 0 Operating expenses (720,300) (340,200) [D] 0 0 Net income $753,550 $183,400 $ Statement of retained earnings BOY retained earnings $1,694,700 $676,200 [E] 0 $ 0 Net income 753,550 183,400 0 Dividends (364,000) (28,000) 0 [q 0 Ending retained earnings $2,084,250 $831,600 $ 0 Balance sheet Assets Cash $719,600 $337,400 $ Accounts receivable 1,229,200 303,800 Inventory 1,624,000 389,900 Equity investment 1,530,550 0 [q 0 0 [E] O O O O 0 [A] PPE, net 0 [D] 0 0 0 Patent Licenses Goodwill 2,923,200 721,000 [A] [A] [A] [A] $8,026,550 $1,752,100 0 [D] 0 D 0 0 0 0 0 $ 0 $ 0 Liabilities and equity Accounts payable Accrued liabilities Long-term liabilities Common stock 0 0 $702,800 $124,600 835,800 163,100 2,100,000 436,100 527,100 87,500 [E] $ 1,776,600 109,200 [E] $ 2,084,250 831,600 $8,026,550 $1,752,100 $ 0 0 0 0 APIC Retained earnings . 0 0 $ 0 $ 0