Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2010. The purchase price was $500,000 million 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: AAP Asset Original Original Useful Amount Property, plant and equipment (PPE), net $100,000 Customer list Royalty agreement Goodwill Life (years) 20 165,000 135,000 100,000 $500,000 10 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 2012 and 2013: Gross Profit Remaining Inventory in Unsold Receivable Sales 2013 $68,000 2012 $43,700 Inventory $19,580 (Payable) $27,400 $12,797 $13,437 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, 2013, follow in part d. below. a. Show the computation to yield the pre-consolidation $69,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Plus: Less: = 0 0 0 0 0 AAP depreciation Income (loss) from subsidiary b. Show the computation to yield the Equity Investment balance of $959,789 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate. Common stock APIC Retained earnings BOY unamortized AAP 0 0 0 0 BOY deferred profit 0 Income (loss) from subsidiary 0 Dividends 0 Equity investment 0 d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate. Parent Sub Elimination Entries Dr Cr Consolidated Income statement: Sales $4,370,000 $785,000 [Isales] 0 $ 0 Cost of goods sold (3,059,000) (469,800) [Icogs] 0 0 [Icogs] [Isales] 0 Gross profit 1,311,000 315,200 $ 0 Income (loss) from subsidiary 69,837 [C] 0 0 Operating expenses (830,300) Net income (203,580) $550,537 $111,620 [] 0 D $ 0 Statement of retained earnings: BOY retained earnings $2,195,488 $404,550 [E] 0 Net income 550,537 111,620 Dividends EOY retained earnings Balance sheet: $2,617,861 (128,164) (14,251) $501,919 0 D [C] 0 $ D Assets Cash Accounts receivable Inventory PPE, not Customer List Royalty agreement Goodwill Equity investment $650,639 $255,087 0 559,360 181,656 847,780 233,334 0 ) D 0 [Icogs] 0 4,078,084 431,694 [A] 0 0 [D] 0 [A] 0 0 [D] D [A] 0 0 [D] 0 [A] 0 0 959,789 [Icogs] 0 0 [C] 0 [E] [A] $ 0 Liabilities and stockholders' equity $7,095,652 $1,101,771 Accounts payable Other currentliabilities Long-term liabilities Common stock $327,313 593,459 [) 403,228 127,943 0 0 0 2,500,000 261,000 0 714,495 52,200 [E] 0 0 c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description [C] Dividends [E] Common stock APIC Debit Credit 0 0 0 0 0 0 0 0 0 0 0 0 [A] PPE net Customer list Royalty agreement 0 0 0 0 0 0 0 0 0 [D] 0 0 PPE net 0 Customer list 0 = 0 0 [Icogs] 0 0 0 0 To recognize deferred profit on prior year's sale. [Isales] 0 0 [Icogs] 0 0 0 0 To defer gross profit on the intercompany sale. [|payl 0 0 0 0 d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate.