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	$100,000	20
Customer list	170,000	10
Royalty agreement	130,000	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:

	Inventory Sales	Gross Profit Remaining in Unsold Inventory	Receivable (Payable)
2013	$68,000	$19,480	$27,300
2012	$43,700	$12,697	$13,337

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 $68,837 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 AAPBOY deferred profitDividends		Answer Mark 0.00 out of 1.00
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 AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00
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 AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00
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 AAPBOY deferred profitDividends		Answer Mark 0.00 out of 1.00
	Income (loss) from subsidiary	Answer Mark 0.00 out of 1.00

b. Show the computation to yield the Equity Investment balance of $958,889 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate.

Common stock	Answer Mark 0.00 out of 1.00
APIC	Answer Mark 0.00 out of 1.00
Retained earnings	Answer Mark 0.00 out of 1.00
BOY unamortized AAP	Answer Mark 0.00 out of 1.00
BOY deferred profit	Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	Answer Mark 0.00 out of 1.00
Dividends	Answer Mark 0.00 out of 1.00
Equity investment	Answer Mark 0.00 out of 1.00

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 AAPBOY deferred profitIncome (loss) from subsidiaryDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Dividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
	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 AAPBOY deferred profitIncome (loss) from subsidiaryDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[E]	Common stock	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	APIC	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 investmentPatentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[A]	PPE net	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Customer list	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Royalty agreement	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitEquity incomeDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitEquity incomeDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[D]	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 AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	PPE net	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
	Customer list	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
	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 AAPBOY deferred profitDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Icogs]	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 AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Isales]	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 AAPBOY deferred profitEquity incomeDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Icogs]	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 AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Ipay]	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 AAPBOY deferred profitDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 AAPBOY deferred profitDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00

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	$784,000	[Isales]	Answer Mark 0.00 out of 1.00			$Answer Mark 0.00 out of 1.00
Cost of goods sold	(3,059,000)	(469,800)	[Icogs]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[Icogs]	Answer Mark 0.00 out of 1.00
					Answer Mark 0.00 out of 1.00	[Isales]
Gross profit	1,311,000	314,200					$Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	68,837		[C]	Answer Mark 0.00 out of 1.00			Answer Mark 1.00 out of 1.00
Operating expenses	(830,300)	(203,580)	[D]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Net income	$549,537	$110,620					$Answer Mark 0.00 out of 1.00
Statement of retained earnings:
BOY retained earnings	$2,195,488	$404,550	[E]	Answer Mark 0.00 out of 1.00			$Answer Mark 0.00 out of 1.00
Net income	549,537	110,620					Answer Mark 0.00 out of 1.00
Dividends	(127,164)	(14,251)			Answer Mark 0.00 out of 1.00	[C]	Answer Mark 0.00 out of 1.00
EOY retained earnings	$2,617,861	$500,919					$Answer Mark 0.00 out of 1.00
Balance sheet:
Assets
Cash	$650,639	$254,087					$Answer Mark 0.00 out of 1.00
Accounts receivable	559,360	181,656			Answer Mark 0.00 out of 1.00	[Ipay]	Answer Mark 0.00 out of 1.00
Inventory	847,780	233,334			Answer Mark 0.00 out of 1.00	[Icogs]	Answer Mark 0.00 out of 1.00
PPE, net	4,078,084	431,694	[A]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[D]	Answer Mark 0.00 out of 1.00
Customer List			[A]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[D]	Answer Mark 0.00 out of 1.00
Royalty agreement			[A]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[D]	Answer Mark 0.00 out of 1.00
Goodwill			[A]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Equity investment	Answer Mark 0.00 out of 1.00		[Icogs]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[C]	Answer Mark 1.00 out of 1.00
					Answer Mark 0.00 out of 1.00	[E]
					Answer Mark 0.00 out of 1.00	[A]
	$Answer Mark 0.00 out of 1.00	$Answer Mark 0.00 out of 1.00					$Answer Mark 0.00 out of 1.00
Liabilities and stockholders equity
Accounts payable	$327,313	$93,459	[Ipay]	Answer Mark 0.00 out of 1.00			$Answer Mark 0.00 out of 1.00
Other current liabilities	403,228	127,943					Answer Mark 0.00 out of 1.00
Long-term liabilities	2,500,000	261,000					Answer Mark 0.00 out of 1.00
Common stock	714,495	52,200	[E]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
APIC	531,855	65,250	[E]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Retained earnings	2,617,861	500,919					Answer Mark 0.00 out of 1.00
	$7,094,752	$1,100,771		$Answer Mark 0.00 out of 1.00	$Answer Mark 0.00 out of 1.00		$Answer Mark 0.00 out of 1.00

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