Question
Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2010. The purchase price
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 Amount | Original Useful Life (years) |
|---|---|---|
| Property, plant and equipment (PPE), net | $100,000 | 20 |
| Customer list | 165,000 | 10 |
| Royalty agreement | 135,000 | 10 |
| Goodwill | 100,000 | indefinite |
| $500,000 |
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:
| Inventory Sales | Gross Profit Remaining in Unsold Inventory | Receivable (Payable) | |
|---|---|---|---|
| 2013 | $68,000 | $19,580 | $27,400 |
| 2012 | $43,700 | $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.
| AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends | Answer | |
| Plus: | AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends | Answer |
| Less: | AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends | Answer |
| AAP depreciation | Answer | |
| Income (loss) from subsidiary | Answer | |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
