Consolidation worksheet for gain on constructive retirement of subsidiary's debt with no AAP-Cost method Assume that a Parent company acquires a 75% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 75 percent controlling interest was $600,000 and the fair value of the 25 percent noncontrolling interest was $200,000. On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill). On January 1, 2015, the retained earnings of the subsidiary was $150,000 On December 31, 2016, the Subsidiary company issued $750,000 (face) 6 percent, five-year bonds to an unaffiliated company for $765,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight line method. This results in annual bond-payable premium amortization equal to $3,000 per year. The following schedule provides the bond- amortization schedule from the initial issuance date. Year Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec. 31, 2021 Cash Payment Amortization of Premium Interest Expense Carrying Amount $765,000 $45,000 $3,000 $42,000 762,000 45,000 3,000 759,000 45,000 3,000 42,000 756,000 45,000 3,000 42,000 753,000 45,000 3,000 42,000 750,000 42,000 On December 31, 2018, the Parent paid $735,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $5,000 per year. The following schedule provides the bond-amortization schedule for the Parent's bond investment. Year Cash Payment Amortization of Discount Interest Income Carrying Amount Dec 31, 2018 $735,000 Dec 31, 2019 $45,000 $5,000 $50,000 740,000 Dec. 31, 2020 45,000 5,000 50,000 745,000 Dec 31, 2021 45,000 5,000 50,000 750,000 The parent uses the cost method of pre-consolidation investment bookkeeping. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $6,500,000 $800,000 Assets Cost of goods sold (4,500,000) (450,000) Cash $700,000 $300,000 Gross profit 2,000,000 350,000 Accounts receivable 800,000 500.000 Operating and other expenses (1,500,000) (200,000) Inventories 1,000,000 800,000 Bond interest income 50,000 PPE, net 3,000,000 1,250,000 Bond interest expense (42,000) Equity investment 600,000 Total expenses (1,450,000) (242,000) Investment in bond, net 740,000 Income from subsidiary 30,000 $6,840,000 $2,850,000 Net income $580,000 $108,000 Liabilities and stockholders' equity Statement of retained earnings Accounts payable $800,000 $250,000 BOY retained earnings $760,000 $276,000 Other current liabilities 900,000 400,000 Net income 580,000 108,000 Bond payable (net) 756,000 Dividends (200,000) (40,000) Other long-term liabilities 1,400,000 450,000 Ending retained earnings $1,140,000 $344,000 Common stock 600,000 150,000 APIC 2,000,000 500,000 Retained earnings 1,140,000 344,000 6,840,000 2,850,000 Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019. Round answers to the nearest whole number. Consolidation Journal Description Debit Credit [AD] 0 0 0 0 Income from subsidiary 0 0 0 0 0 0 0 Noncontrolling Interest 0 0 [E] Common Stock (Subsidiary) 0 0 APIC (Subsidiary) 0 0 0 [C] 0 0 0 0 0 0 Noncontrolling interest [lbond] Bond payable, net 0 0 0 0 0 0 0 Interest expense Investment in Subsidiary 0 0 0 Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributa Consolidation Worksheet Parent Subsidiary Debit Credit Consolidated Income Statement Sales $6,500,000 $800,000 $ 0 Cost of goods sold (4,500,000) (450,000) 0 Gross profit 2,000,000 350,000 0 Operating and other expenses (1.500,000) (200,000) 0 Bond interest income 50000 [lbond] 0 0 Bond interest expense Bedinte (42,000) O [ibond) 0 Total expenses (1,450,000) (242,000) 0 0 Income from Subsidiary 30,000 [C] 0 0 ce Consolidated Net Income 580,000 108,000 0 Income attributable to NCI [C] 0 0 0 Income attributable to Control Int $580.000 $108,000 $ 0 Retained Earnings Statement n's Beg, Ret. Earnings $760,000 $276,000 [E] 0 0 CAD $ 0 Income attributable to Control Int 580,000 108,000 0 Dividends Declared (200,000) (40,000) 0 [C] 0 Ending Retained Earnings $1,140,000 $344,000 $ 0 Balance Sheet Cash $700,000 $300,000 an 0 Accounts receivable 800,000 500,000 0 Inventories 1,000,000 800,000 0 Property, Plant & Equipment, net 3,000,000 1,250,000 0 Investment in Subsidiary 600,000 [AD] 0 0 [E] 0 0 [ibond) Investment in Bond (net) 740,000 0 [ibond) 0 0 Total Assets $6,840,000 $2,850,000 $ 0 Accounts Payable $800,000 $250.000 0 Other current liabilities 900,000 400,000 0 Bond Payable (net) 756,000 [ibond] 0 0 Other long-term liabilities 1.400,000 450.000 0 Common Stock 600,000 150,000 [E] 0 0 APIC 2,000,000 500,000 [E] 0 0 0 Retained Earnings 1,140,000 344,000 0 Noncontrolling Interest 0 [C] 0 0 0 [E] Total Liabilities and Equity $6,840,000 $2,850,000 $ 0 $ 0 $ 0