Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2016. The purchase price was $600,000 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	$120,000	20
Customer list	210,000	10
Royalty agreement	150,000	10
Goodwill	120,000	indefinite
	$600,000

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 2018 and 2019:

	Inventory Sales	Gross Profit Remaining in Unsold Inventory	Receivable (Payable)
2019	$81,600	$24,000	$32,400
2018	$51,600	$14,400	$15,600

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, 2019, follow in part d below.

a. Show the computation to yield the pre-consolidation $80,400 Income loss from subsidiary reported by the parent during 2019.

CashAccounts 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
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
Less:	CashAccounts 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
AAP depreciation
	Income (loss) from subsidiary

b. Show the computation to yield the Equity Investment balance of $1,152,000 reported by the parent at December 31, 2019.

Common stock
APIC
Retained earnings
BOY unamortized AAP
BOY deferred profit
Income (loss) from subsidiary
Dividends
Equity investment

c. Prepare the consolidation entries for the year ended December 31, 2019.

d. Prepare the consolidation spreadsheet for the year ended December 31, 2019.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$5,160,000	$939,600	[Isales]
Cost of goods sold	(3,600,000)	(564,000)	[Icogs]			[Icogs]
						[Isales]
Gross profit	1,560,000	375,600
Income (loss) from subsidiary	80,400		[C]
Operating expenses	(996,000)	(243,600)	[D]
Net income	$644,400	$132,000
Statement of retained earnings:
BOY retained earnings	$2,619,600	$486,000	[E]
Net income	644,400	132,000
Dividends	(144,000)	(18,000)				[C]
EOY retained earnings	$3,120,000	$600,000
Balance sheet:
Assets
Cash	$756,000	$300,000
Accounts receivable	672,000	228,000				[Ipay]
Inventory	1,020,000	276,000				[Icogs]
PPE, net	4,800,000	516,000	[A]			[D]
Customer List			[A]			[D]
Royalty agreement			[A]			[D]
Goodwill			[A]
Equity investment	1,152,000		[Icogs]			[C]
						[E]
					Answer	[A]
	$8,400,000	$1,320,000
Liabilities and stockholders equity
Accounts payable	$360,000	$110,400	[Ipay]
Other current liabilities	480,000	152,400
Long-term liabilities	3,000,000	313,200
Common stock	816,000	60,000	[E]	Answer			Answer
APIC	624,000	84,000	[E]
Retained earnings	3,120,000	600,000
	$8,400,000	$1,320,000