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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 1,2013. The purchase price was $450,000 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 $90,00020
Customer list 157,50010
Royalty agreement 112,50010
Goodwill 90,000 indefinite
$450,000
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 2015 and 2016:
Inventory
Sales Gross Profit
Remaining
in Unsold
Inventory
Receivable
(Payable)
2016 $61,200 $18,000 $24,300
2015 $38,700 $10,800 $11,700
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 31,2016, follow in part d. below.
a. Show the computation to yield the pre-consolidation $60,300 Income loss from subsidiary reported by the parent during 2016. 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 investmentAPICCommon 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 investmentAPICCommon 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 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 $864,000 reported by the parent at December 31,2016. 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 31,2016.vestment Answer
c. Prepare the consolidation entries for the year ended December 31,2016.
d. Prepare the consolidation spreadsheet for the year ended December 31,2016. Hint: Use negative signs with answers when appropriate.

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