Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2019. The purchase price was $450,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following AAP assets: Original Original Useful AAP Asset Property, plant and equipment (PPE), net Customer list Royalty agreement Goodwill Amount $90,000 Life (years) 20 157,500 10 112,500 90,000 $450,000 10 indefinite The AAP assets with a definite useful life have been amortized as part of the parent's equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2021 and 2022: Gross Profit Remaining Inventory in Unsold Receivable Sales Inventory (Payable) 2022 $61,200 $18,000 $24,300 2021 $38,700 $10,800 $11,700 The inventory not remaining at the end of the year has been sold to unaffiliated entities outside of the consolidated group. The parent uses the equity method to account for its Equity Investment. The financial statements of the parent and its subsidiary for the year ended December 31, 2022 follow in part d. below. a. Show the computation to yield the pre-consolidation $60,300 Income loss from subsidiary reported by the parent during 2022. Note: Use negative signs with answers when appropriate. Plus: Less: AAP depreciation Income (loss) from subsidiary b. Show the computation to yield the Equity Investment balance of $864,000 reported by the parent at December 31, 2022. Note: Use negative signs with answers when appropriate. Common stock APIC Retained earnings BOY unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment c. Prepare the consolidation entries for the year ended December 31, 2022. Consolidation Worksheet [C] Dividends Description [E] Common stock APIC [A] PPE net Customer list Debit Credit = Royalty agreement [D] PPE net Customer list [Icogs] To recognize deferred profit on prior year's sale. [Isales] [Icogs] [Ipayl To defer gross profit on the intercompany sale. d. Prepare the consolidation spreadsheet for the year ended December 31, 2022. Hint: Use negative signs with answers when appropriate. Income statement: Parent Sub Sales Cost of goods sold $3,870,000 $704,700 [Isales] (2,700,000) (423,000) [Icogs] Gross profit 1,170,000 281,700 Income (loss) from subsidiary 60,300 [C] Operating expenses (747,000) (182,700) [D] Net income $483,300 $99,000 Statement of retained earnings: BOY retained earnings $1,964,700 $364,500 [E] Net income Dividends 483,300 99,000 (108,000) (13,500) EOY retained earnings $2,340,000 $450,000 Balance sheet: Assets Dr 00 Elimination Entries Cr $ [Icogs] [Isales] $ [C] $ Cash $567,000 $225,000 Accounts receivable 504,000 171,000 [Ipay] Inventory 765,000 207,000 [Icogs] PPE, net 3,600,000 387,000 [A] [D] Customer List Royalty agreement Goodwill [A] [D] [A] [D] [A] $ $ Consolidated Equity investment 864,000 [Icogs] [C] [E] Liabilities and stockholders' equity Accounts payable Other current liabilities $6,300,000 $990,000 $270,000 $82,800 [Ipayl 360,000 114,300 Long-term liabilities Common stock 2,250,000 234,900 612,000 45,000 [E] APIC 468,000 63,000 [E] Retained earnings 2,340,000 450,000 $6,300,000 $990,000 $ $ [A] $ $ $ +A