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 165,000 10 Royalty agreement 135,000 10 Goodwil 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 Inventory (Payable) $19,580 527,400 2012 $43.700 512,797 $13,437 2013 Sales $68,000 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 dbelow. a. Show the computation to yield the pre-consolidation $69,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Net income of subsidiary 1011771 Plus: Prior year intercompany gross profit 12797 Less: Current year intercompany gross profit -19580 AAP depreciation -935151 Income loss) from subsidiary 69837 b. Show the computation to yield the Equity Investment balance of $959,789 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate Common stock 52200 APIC 65250 Retained earnings 404550 BOY amortized AAP 395000 BOY deferred profit - 12597 Income foss) from subsidiary 67837 Dividends -14251 Equity investment 959789 c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit Income foss) from subsidiary 69837 0 Dividends O 14251 Equity investment 0 53586 IE) Common stock 52200 APIC 65254 0 BOY retained earnings 404550 ( ( 0 [A] 0 ( c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit Income (loss) from subsidiary [C] 0 69837 Dividends 0 14251 Equity investment 0 53586 [E] Common stock 52200 0 APIC 65250 0 BOY retained earnings 404550 0 Equity investment 0 522000 PPE net 85000 Customer list 122000 0 Royalty agreement 87500 Goodwill 100000 0 Equity investment 0 395000 Operating expenses 35000 0 PPE net 0 5000 Customer list 0 17500 Royalty agreement 0 12500 [lcogs] Equity investment 12597 Cost of goods sold 0 12597 [lsales] Sales 68000 0 Cost of goods sold 68000 [lcogs] Cost of goods sold 19380 0 Inventory 0 19380 [lpay Accounts payable 27200 0 Accounts receivable 0 27200 ( [D] ( 0 > . 0 > > 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 (sales) 68000 $ 5087000 Cost of goods sold (3,059,000) (469,800) (cogs 19380 12597 cog) -3467583 68000 [sales] Gross profit 1,311,000 315,200 $ 1617417 Income (loss) from subsidiary 69,837 [C] 69837 Operating expenses (830,300) (203,580) (D) 35000 -1068880 Net income $550,537 $111,620 $ 485537 Statement of retained earnings: BOY retained earnings $2.195,488 $404,550 (E) 404550 $ 2195488 Net income 550,537 111,620 548537 Dividends (128,164) (14,251) 14251 [C -126164 EOY retained earnings $2,617,861 $501,919 $ 2617861 Balance sheet: Assets Cash $650,639 $255,087 $ 903726 Accounts receivable 559,360 181,656 27200 ) 713816 Inventory 847,780 233,334 19380 [icogs 1061734 PPE, net 4,078,084 431,694 [A] 85000 5000 [D] 4589778 Customer List [A] 122000 17500 [D] 105000 [A] 12500 87500 Royalty agreement 75000 [D] [A] Goodwill 100000 100000 959,789 12597 [lcogs 53586 Equity investment 0 522000 [] 395000 TAJ $ 7549054 $7,095,652 $1,101,771 $ 903726 $650,639 559,360 847.780 4,078,084 $255,087 181,656 233,334 431,694 27200 tlpay 19380 [cogs] 713816 1061734 85000 4589778 Cash Accounts receivable Inventory PPE, net Customer List Royalty agreement Goodwill Equity investment [D] [D] 122000 5000 17500 12500 TA) [A] [A] [A] [lcogs 105000 87500 [D] 75000 100000 100000 0 959,789 12597 53586 522000 [C] [E] [A] 395000 $7,095,652 $1,101,771 $ 7549054 27200 $ 393572 531171 2761000 Liabilities and stockholders' equity Accounts payable Other currentliabilities Long-term liabilities Common stock APIC Retained earnings $327,313 $93,459 pay) 403,228 127,943 2,500,000 261,000 714,495 52,200 [E] 532,755 65,250 [E] 2,617,861 501,919 $7,095,652 $1,101,771 52200 65250 714495 532755 3119780 7521602 $ 144650 $ 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 165,000 10 Royalty agreement 135,000 10 Goodwil 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 Inventory (Payable) $19,580 527,400 2012 $43.700 512,797 $13,437 2013 Sales $68,000 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 dbelow. a. Show the computation to yield the pre-consolidation $69,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Net income of subsidiary 1011771 Plus: Prior year intercompany gross profit 12797 Less: Current year intercompany gross profit -19580 AAP depreciation -935151 Income loss) from subsidiary 69837 b. Show the computation to yield the Equity Investment balance of $959,789 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate Common stock 52200 APIC 65250 Retained earnings 404550 BOY amortized AAP 395000 BOY deferred profit - 12597 Income foss) from subsidiary 67837 Dividends -14251 Equity investment 959789 c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit Income foss) from subsidiary 69837 0 Dividends O 14251 Equity investment 0 53586 IE) Common stock 52200 APIC 65254 0 BOY retained earnings 404550 ( ( 0 [A] 0 ( c. Prepare the consolidation journal entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit Income (loss) from subsidiary [C] 0 69837 Dividends 0 14251 Equity investment 0 53586 [E] Common stock 52200 0 APIC 65250 0 BOY retained earnings 404550 0 Equity investment 0 522000 PPE net 85000 Customer list 122000 0 Royalty agreement 87500 Goodwill 100000 0 Equity investment 0 395000 Operating expenses 35000 0 PPE net 0 5000 Customer list 0 17500 Royalty agreement 0 12500 [lcogs] Equity investment 12597 Cost of goods sold 0 12597 [lsales] Sales 68000 0 Cost of goods sold 68000 [lcogs] Cost of goods sold 19380 0 Inventory 0 19380 [lpay Accounts payable 27200 0 Accounts receivable 0 27200 ( [D] ( 0 > . 0 > > 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 (sales) 68000 $ 5087000 Cost of goods sold (3,059,000) (469,800) (cogs 19380 12597 cog) -3467583 68000 [sales] Gross profit 1,311,000 315,200 $ 1617417 Income (loss) from subsidiary 69,837 [C] 69837 Operating expenses (830,300) (203,580) (D) 35000 -1068880 Net income $550,537 $111,620 $ 485537 Statement of retained earnings: BOY retained earnings $2.195,488 $404,550 (E) 404550 $ 2195488 Net income 550,537 111,620 548537 Dividends (128,164) (14,251) 14251 [C -126164 EOY retained earnings $2,617,861 $501,919 $ 2617861 Balance sheet: Assets Cash $650,639 $255,087 $ 903726 Accounts receivable 559,360 181,656 27200 ) 713816 Inventory 847,780 233,334 19380 [icogs 1061734 PPE, net 4,078,084 431,694 [A] 85000 5000 [D] 4589778 Customer List [A] 122000 17500 [D] 105000 [A] 12500 87500 Royalty agreement 75000 [D] [A] Goodwill 100000 100000 959,789 12597 [lcogs 53586 Equity investment 0 522000 [] 395000 TAJ $ 7549054 $7,095,652 $1,101,771 $ 903726 $650,639 559,360 847.780 4,078,084 $255,087 181,656 233,334 431,694 27200 tlpay 19380 [cogs] 713816 1061734 85000 4589778 Cash Accounts receivable Inventory PPE, net Customer List Royalty agreement Goodwill Equity investment [D] [D] 122000 5000 17500 12500 TA) [A] [A] [A] [lcogs 105000 87500 [D] 75000 100000 100000 0 959,789 12597 53586 522000 [C] [E] [A] 395000 $7,095,652 $1,101,771 $ 7549054 27200 $ 393572 531171 2761000 Liabilities and stockholders' equity Accounts payable Other currentliabilities Long-term liabilities Common stock APIC Retained earnings $327,313 $93,459 pay) 403,228 127,943 2,500,000 261,000 714,495 52,200 [E] 532,755 65,250 [E] 2,617,861 501,919 $7,095,652 $1,101,771 52200 65250 714495 532755 3119780 7521602 $ 144650 $ 0 $