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: Original Original Useful AAP Asset Amount Life (years) Property, plant and equipment (PPE), net $100,000 20 Customer list 175,000 10 Royalty agreement 125,000 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: Gross Profit Remaining Inventory in Unsold Receivable Sales Inventory (Payable) $68,000 $19,380 $27,200 2012 $43,700 $12,597 $13,237 2013 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 $67,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. 0 Plus: 0 0 Less: AAP depreciation Income (loss) from subsidiary 0 0 b. Show the computation to yield the Equity Investment balance of $957,989 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate. Common stock 0 APIC 0 0 0 0 Retained earnings BOY unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment 0 0 0 C. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit [C] 0 0 Dividends 0 0 0 0 [E] Common stock 0 0 APIC 0 0 0 0 0 [A] 0 PPE net Customer list Royalty agreement 0 0 0 0 0 0 0 0 > 0 0 [D] 0 PPE net 0 0 Customer list 0 0 0 0 0 [lcogs] 0 0 0 To recognize deferred profit on prior year's sale. [lsales] 0 0 0 0 0 [lcogs) 0 0 > 0 0 To defer gross profit on the intercompany sale. [lpay] 0 0 0 0 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 $783,000 [lsales] 0 $ 0 Cost of goods sold (3,059,000) (469,800) [lcogs] 0 o [lcogs] 0 0 [lsales] Gross profit 1,311,000 313,200 $ 0 Income (loss) from subsidiary 67,837 [C] 0 0 0 Operating expenses (830,300) (203,580) [D] 0 0 Net income $548,537 $109,620 $ 0 Statement of retained earnings: BOY retained earnings $2,195,488 $404,550 [E] 0 $ 0 Net income 548,537 109,620 0 Dividends (126,164) (14,251) 0 [] 0 EOY retained earnings $2,617,861 $499,919 $ 0 Balance sheet: Assets Cash $650,639 $253,087 $ 0 Accounts receivable 559,360 181,656 0 [lpay] 0 Inventory 847,780 233,334 0 [lcogs] 0 PPE, net 4,078,084 431,694 [A] 0 0 0 [D] 0 Customer List [A] 0 0 [D] 0 Royalty agreement [A] 0 0 [D] 0 Goodwill [A] 0 0 Equity investment 957,989 [lcogs] 0 0 [C] 0 0 [E] 0 [A] $7,093,852 $1,099,771 $ 0 Liabilities and stockholders' equity Accounts payable $327,313 $93,459 [lpay] $ 0 Other current liabilities 403,228 127,943 0 Long-term liabilities 2,500,000 261,000 0 Common stock 714,495 52,200 [ [E] 0 0 APIC 530,955 65,250 [E] 0 0 Retained earnings 2,617,861 499,919 0 $7,093,852 $1,099,771 $ 0 $ 0 $ 0 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: Original Original Useful AAP Asset Amount Life (years) Property, plant and equipment (PPE), net $100,000 20 Customer list 175,000 10 Royalty agreement 125,000 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: Gross Profit Remaining Inventory in Unsold Receivable Sales Inventory (Payable) $68,000 $19,380 $27,200 2012 $43,700 $12,597 $13,237 2013 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 $67,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. 0 Plus: 0 0 Less: AAP depreciation Income (loss) from subsidiary 0 0 b. Show the computation to yield the Equity Investment balance of $957,989 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate. Common stock 0 APIC 0 0 0 0 Retained earnings BOY unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment 0 0 0 C. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit [C] 0 0 Dividends 0 0 0 0 [E] Common stock 0 0 APIC 0 0 0 0 0 [A] 0 PPE net Customer list Royalty agreement 0 0 0 0 0 0 0 0 > 0 0 [D] 0 PPE net 0 0 Customer list 0 0 0 0 0 [lcogs] 0 0 0 To recognize deferred profit on prior year's sale. [lsales] 0 0 0 0 0 [lcogs) 0 0 > 0 0 To defer gross profit on the intercompany sale. [lpay] 0 0 0 0 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 $783,000 [lsales] 0 $ 0 Cost of goods sold (3,059,000) (469,800) [lcogs] 0 o [lcogs] 0 0 [lsales] Gross profit 1,311,000 313,200 $ 0 Income (loss) from subsidiary 67,837 [C] 0 0 0 Operating expenses (830,300) (203,580) [D] 0 0 Net income $548,537 $109,620 $ 0 Statement of retained earnings: BOY retained earnings $2,195,488 $404,550 [E] 0 $ 0 Net income 548,537 109,620 0 Dividends (126,164) (14,251) 0 [] 0 EOY retained earnings $2,617,861 $499,919 $ 0 Balance sheet: Assets Cash $650,639 $253,087 $ 0 Accounts receivable 559,360 181,656 0 [lpay] 0 Inventory 847,780 233,334 0 [lcogs] 0 PPE, net 4,078,084 431,694 [A] 0 0 0 [D] 0 Customer List [A] 0 0 [D] 0 Royalty agreement [A] 0 0 [D] 0 Goodwill [A] 0 0 Equity investment 957,989 [lcogs] 0 0 [C] 0 0 [E] 0 [A] $7,093,852 $1,099,771 $ 0 Liabilities and stockholders' equity Accounts payable $327,313 $93,459 [lpay] $ 0 Other current liabilities 403,228 127,943 0 Long-term liabilities 2,500,000 261,000 0 Common stock 714,495 52,200 [ [E] 0 0 APIC 530,955 65,250 [E] 0 0 Retained earnings 2,617,861 499,919 0 $7,093,852 $1,099,771 $ 0 $ 0 $ 0