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.

d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$4,370,000	$785,000	[Isales]	Answer			Answer
Cost of goods sold	(3,059,000)	(469,800)	[Icogs]	Answer	Answer	[Icogs]	Answer
					Answer	[Isales]
Gross profit	1,311,000	315,200					Answer
Income (loss) from subsidiary	69,837		[C]	Answer			Answer
Operating expenses	(830,300)	(203,580)	[D]	Answer			Answer
Net income	$550,537	$111,620					Answer
Statement of retained earnings:
BOY retained earnings	$2,195,488	$404,550	[E]	Answer			Answer
Net income	550,537	111,620					Answer
Dividends	(128,164)	(14,251)			Answer	[C]	Answer
EOY retained earnings	$2,617,861	$501,919					Answer
Balance sheet:
Assets
Cash	$650,639	$255,087					Answer
Accounts receivable	559,360	181,656			Answer	[Ipay]	Answer
Inventory	847,780	233,334			Answer	[Icogs]	Answer
PPE, net	4,078,084	431,694	[A]	Answer	Answer	[D]	Answer
Customer List			[A]	Answer	Answer	[D]	Answer
Royalty agreement			[A]	Answer	Answer	[D]	Answer
Goodwill			[A]	Answer			Answer
Equity investment	959,789		[Icogs]	Answer	Answer	[C]	Answer
					Answer	[E]
					Answer	[A]
	$7,095,652	$1,101,771					Answer
Liabilities and stockholders equity
Accounts payable	$327,313	$93,459	[Ipay]	Answer			Answer
Other currentliabilities	403,228	127,943					Answer
Long-term liabilities	2,500,000	261,000					Answer
Common stock	714,495	52,200	[E]	Answer			Answer
APIC	532,755	65,250	[E]	Answer			Answer
Retained earnings	2,617,861	501,919					Answer
	$7,095,652	$1,101,771		Answer	Answer		Answer

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