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 Amount Life (years) AAP Asset Property, plant and equipment (PPE), net Customer list Royalty agreement Goodwill $100,000 185,000 115,000 100,000 $500,000 20 indefinite 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 Receivab Sales Inventory (Payable) 19,180 $27,000 ,700 $12,397 $13,037 2013 $68,000 2012 $43, 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 $71,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Plus: Less: Income (loss) from subsidiary b. Show the computation to yield the Equity Investment balance of $962,189 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate Common stock APIC Retained earnings BOY unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Equity investment C. Prepare the consolidation journal entries for the year ended December 31, 2013 Consolidation Worksheet Debit Credit Description Dividends E] Common stock APIC A] PPE net Customer list Royalty agreement PPE net Customer list lcogs] Isales [lcogs] [lpay] d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate Elimination Entries Sub Parent Consolidated Income statement: $787,000 [Isales] Sales $4,370,000 (469,800) [lcogs] (3,059,000) Cost of goods sold [lcogs] [Isales] Gross profit 317,200 1,311,000 Income (loss) from subsidiary 71,837 (203,580) [D (830,300) Operating expenses $113,620 $552,537 Net income Statement of retained earnings 404,550 E] BOY retained earnings $2,195,488 113,620 Net income 552,537 (130,164) (14,251) IC] Dividends $2,617,861 $503,919 EOY retained earnings Balance sheet: Assets $650,639 Cash $257,087 559,360 181,656 Accounts receivable lpay] [lcogs] ID) ID) ID) 233,334 Inventory 847,780 431,694 [A PPE, net 4,078,084 Customer List Royalty agreement Goodwill IC] Equity investment [lcogs] Liabilities and stockholders' equity $93,459 Ipayl Accounts payable $327,313 Other current liabilities 127,943 403,228 Long-term liabilities 2,500,000 261,000 714,495 52,200 [E] Common stock 714,495 Common stock 52,200 E] APIC 535,155 65,250 [E] 2,617,861 503,919 Retained earnings 7,098,052 1,103,771
