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:

Years	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.

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

d. Prepare the consolidation spreadsheet for the year ended December 31, 2019. Hint: Use negative signs with answers when appropriate.

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

a. Show the computation to yield the pre-consolidation $80,400 Income loss from subsidiary reported by the parent during 2019. Note: Use negative signs with answers when appropriate Net income of subsidiary Plus: Prior year intercompany gross profit Less: Current year intercompany gross profit AAP depreciation Income (loss) from subsidiary Olo b. Show the computation to yield the Equity Investment balance of $1,152,000 reported by the parent at December 31, 2019. Note: 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 Description Debit Credit Dividends [E] Common stock APIC [A] PPE net Customer list Royalty agreement PPE net Customer list [lcogs] [lsales] [lcogs] [lpay]