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) 20 185,000 10 115,000 100,000 $500,000 10 indefinite Property, plant and equipment (PPE), net $100,000 Customer list Royalty agreement Goodwill 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 Inventory (Payable) 2013 2012 $68,000 $43,700 $19,180 $27,000 $12,397 $13,037 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 $71,837 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 Less: Current year intercompany gross profit AAP depreciation Income (loss) from subsidiary 0 0 0 0 0 b. Show the computation to yield the Equity Investment balance of $962,189 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 Equity investment 0 0 c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description [C] Dividends Debit Credit 0 0 0 0 0 [E] Common stock 0 0 APIC 0 0 0 0 0 0 [A] PPE net 0 0 Customer list 0 0 Royalty agreement 0 0 0 0 0 0 [D] 0 0 PPE net Customer list 0 0 0 0 0 0 [Icogs] 0 0 0 0 To recognize deferred profit on prior year's sale. [Isales] 0 0 0 0 [Icogs] 0 0 0 0 To defer gross profit on the intercompany sale. Ilpay 0 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 $787,000 [Isales] 0 $ 0 Cost of goods sold (3,059,000) (469,800) [Icogs] 0 0 [Icogs] 0 0 [Isales] Gross profit 1,311,000 317,200 $ 0 Income (loss) from subsidiary Operating expenses 71,837 (830,300) (203,580) [D] $552,537 $113,620 [C] 0 0 0 0 $ 0 Net income Statement of retained earnings: BOY retained earnings $2,195,488 Net income Dividends EOY retained earnings $404,550 552,537 113,620 (130,164) (14,251) $2,617,861 $503,919 [E] 0 Balance sheet: Assets 0 0 0 [C] 0 $ 0 Cash $650,639 $257,087 0 Accounts receivable 559,360 181,656 Inventory PPE, net 4,078,084 847,780 233,334 431,694 [A] Customer List Royalty agreement Goodwill Equity investment [A] [A] [A] 962,189 [Icogs] OOOOO 0 0 0 ooooo 0 [payl 0 0 [Icogs] 0 0 [D] 0 [D] 0 0 [D] 0 0 0 0 0 [C] 0 0 [E] 0 [A] $ 0 Liabilities and stockholders' equity $7,098,052 $1,103,771 Accounts payable $327,313 $93,459 [payl 0 Other currentliabilities Long-term liabilities Common stock APIC 403,228 127,943 2,500,000 261,000 Retained earnings 714,495 52,200 535,155 65,250 2,617,861 503,919 [E] 0 [E] 0 $7,098,052 $1,103,771 $ 0 0 0 0 0 0 $ 0 $ 0 $ 0