Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2013. The purchase price was $500,000 million 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	$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 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 2015 and 2016:

	Inventory Sales	Gross Profit Remaining in Unsold Inventory	Receivable (Payable)
2016	$68,000	$19,380	$27,200
2015	$43,700	$12,597	$13,237

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, 2016, 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 2016. Hint: Use negative signs with answers when appropriate.

Answer		Answer
Plus:	Answer	Answer
Less:	Answer	Answer
Answer		Answer
	Income (loss) from subsidiary	Answer

b. Show the computation to yield the Equity Investment balance of $957,989 reported by the parent at December 31, 2016. Hint: Use negative signs with answers when appropriate.

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

c. Prepare the consolidation entries for the year ended December 31, 2016.

Consolidation Worksheet
Description		Debit	Credit
[C]	Answer	Answer	Answer
	Dividends	Answer	Answer
	Answer	Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
[A]	PPE net	Answer	Answer
	Customer list	Answer	Answer
	Royalty agreement	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
[D]	Answer	Answer	Answer
	PPE net	Answer	Answer
	Customer list	Answer	Answer
	Answer	Answer	Answer
[Icogs]	Answer	Answer	Answer
	Answer	Answer	Answer
[Isales]	Answer	Answer	Answer
	Answer	Answer	Answer
[Icogs]	Answer	Answer	Answer
	Answer	Answer	Answer
[Ipay]	Answer	Answer	Answer
	Answer	Answer	Answer

d. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Hint: Use negative signs with answers when appropriate.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$4,370,000	$783,000	[Isales]	Answer			$Answer
Cost of goods sold	(3,059,000)	(469,800)	[Icogs]	Answer	Answer	[Icogs]	Answer
					Answer	[Isales]
Gross profit	1,311,000	313,200					$Answer
Income (loss) from subsidiary	67,837		[C]	Answer			Answer
Operating expenses	(830,300)	(203,580)	[D]	Answer			Answer
Net income	$548,537	$109,620					$Answer
Statement of retained earnings:
BOY retained earnings	$2,195,488	$404,550	[E]	Answer			$Answer
Net income	548,537	109,620					Answer
Dividends	(126,164)	(14,251)			Answer	[C]	Answer
EOY retained earnings	$2,617,861	$499,919					$Answer
Balance sheet:
Assets
Cash	$650,639	$253,087					$Answer
Accounts receivable	559,360	181,656			Answer	[Ipay]	Answer
Inventory	847,780	233,334			Answer	[Icogs]	Answer
PPE, net	4,078,084	431,694	[A]	Answer	Answer	[D]	Answer
Customer List			[A]	Answer	Answer	[D]	Answer
Royalty agreement			[A]	Answer	Answer	[D]	Answer
Goodwill			[A]	Answer			Answer
Equity investment	Answer		[Icogs]	Answer	Answer	[C]	Answer
					Answer	[E]
					Answer	[A]
	$Answer	$Answer					$Answer
Liabilities and stockholders equity
Accounts payable	$327,313	$93,459	[Ipay]	Answer			$Answer
Other current liabilities	403,228	127,943					Answer
Long-term liabilities	2,500,000	261,000					Answer
Common stock	714,495	52,200	[E]	Answer			Answer
APIC	530,955	65,250	[E]	Answer			Answer
Retained earnings	2,617,861	499,919					Answer
	$7,093,852	$1,099,771		$Answer	$Answer		$Answer Mark 0.00 out of 1.00