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 $$100,00020$

Customer list $185,00010$

Royalty agreement $115,00010$

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$)$

$2013$ $$68,000$ $$19,180$ $$27,000$

$2012$ $$43,700$ $$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.

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

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 Answer

APIC Answer

Retained earnings Answer

BOY unamortized AAP Answer

BOY deferred profit Answer

Income $($loss$)$ from subsidiary Answer

Dividends Answer

Equity investment Answer

c$.$ Prepare the consolidation journal entries for the year ended December $31,2013.$

Consolidation Worksheet

Description Debit Credit

$[$C$]$ 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 AAPIncome $($loss$)$ from subsidiaryDividends Answer Answer

Dividends Answer Answer

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 AAPIncome $($loss$)$ from subsidiaryDividends Answer Answer

$[$E$]$ Common stock Answer Answer

APIC Answer Answer

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 investmentPatentAP