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: Original Original Useful AAP Asset Amount Life (years) 20 10 Property, plant and equipment (PPE), net $100,000 Customer list Royalty agreement Goodwill 170,000 130,000 100,000 $500,000 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 2012 and 2013: Gross Profit Remaining Inventory in Unsold Receivable 2013 Sales $68,000 2012 $43,700 Inventory $19,480 (Payable) $27,300 $12,697 $13,337 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 $68,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Net income of subsidiary Plus: Prior year intercompany gross profit 0 0 Less: Current year intercompany gross profit + AAP depreciation Income (loss) from subsidiary 0 0 b. Show the computation to yield the Equity Investment balance of $958,889 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 c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit [C] Income (loss) from subsidiary 0 0 Dividends 0 0 Equity investment 0 0 [E] Common stock 0 0 APIC 0 0 BOY retained earnings 0 0 Equity investment 0 0 [A] PPE net 0 0 Customer list 0 0 Royalty agreement 0 0 Goodwill 0 0 Equity investment 0 0 [D] Operating expenses 0 0 PPE net Customer list 0 0 0 0 Royalty agreement [Icogs] Equity investment Cost of goods sold 0 0 0 0 0 0 To recognize deferred profit on prior year's sale. [Isales] Sales Cost of goods sold [Icogs] Cost of goods sold Inventory To defer gross profit on the intercompany sale. [Ipay] Accounts payable Accounts receivable " 0 0 0 0 0 0 0 0 0 0 0 0 d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropria Elimination Entries Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Statement of retained earnings: Parent Sub Dr Cr Consolidated $4,370,000 $784,000 [Isales] 0 $ 0 (3.059,000) (469,800) [Icogs] 0 0 [Icogs] 0 0 [Isales] 1,311,000 314,200 $ 0 68,837 (830,300) (203,580) [D] $549,537 $110,620 [C] 0 0 0 0 $ 0 BOY retained earnings $2,195,488 Net income Dividends EOY retained earnings $404,550 549,537 110,620 (127,164) (14,251) $2,617,861 $500,919 [E] 0 Balance sheet: Assets Cash $650,639 $254,087 Accounts receivable Inventory PPE, net 4,078,084 559,360 181,656 847,780 233,334 431,694 [A] Customer List Royalty agreement Goodwill [A] [A] [A] Equity investment 958,889 [Icogs] ooooo $7,094,752 $1,100,771 Liabilities and stockholders' equity Accounts payable Other current liabilities $327,313 $93,459 [lpay] 403,228 127,943 0 Long-term liabilities 2,500,000 261,000 Common stock APIC Retained earnings 714,495 531,855 2,617,861 500,919 52,200 [E] 0 65,250 [E] 0 $7,094,752 $1,100,771 0 0 0 [C] 0 $ 0 $ 0 0 0 0 ooooo 0 [pay 0 [Icogs] [D] [D] [D] oooooooo 0 OOO 0 [C] 0 [E] 0 [A] $ 0 $ 0 0 0 0 0 0 $ 0 $ 0 $ 0