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Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1 , 2 0 1
Consolidation spreadsheet for continuous sale of inventory Equity method
Assume that a parent company acquired a subsidiary on January The purchase price was $ million in excess of the subsidiarys 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 $
Customer list
Royalty agreement
Goodwill indefinite
$
The AAP assets with a definite useful life have been amortized as part of the parents 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 and :
Inventory
Sales Gross Profit
Remaining
in Unsold
Inventory
Receivable
Payable
$ $ $
$ $ $
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 follow in part d below.
a Show the computation to yield the preconsolidation $ Income loss from subsidiary reported by the parent during Hint: Use negative signs with answers when appropriate.
AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLongterm liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends Answer
Plus: AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLongterm liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends Answer
Less: AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLongterm liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon 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 $ reported by the parent at December 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 inc. Prepare the consolidation entries for the year ended December vestment Answer
c Prepare the consolidation entries for the year ended December
d Prepare the consolidation spreadsheet for the year ended December Hint: Use negative signs with answers when appropriate.
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