Consolidation worksheet for gain on constructive retirement of subsidiarys debt with no AAPEquity method Assume that a Parent company acquires a 80% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 80 percent controlling interest was $640,000 and the fair value of the 20 percent noncontrolling interest was $160,000. 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 December 31, 2016, the Subsidiary company issued $800,000 (face) 8 percent, five-year bonds to an unaffiliated company for $832,000. 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 $6,400 per year.

On December 31, 2018, the Parent paid $776,000 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 $8,000 per year.

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				$4,500,000		$800,000			Assets
Cost of goods sold				(2,800,000)		(500,000)			Cash					$700,000		$400,000
Gross profit				1,700,000		300,000			Accounts receivable					850,000		600,000
Operating & other expenses				(1,400,000)		(146,000)			Inventories					900,000		800,000
Bond interest income				72,000		-			PPE, net					2,000,000		1,500,000
Bond interest expense						(57,600)			Equity investment					778,560		-
Income from subsidiary				62,720		-			Investment in bond (net)					784,000		-
Net income				$434,720		$96,400								$6,012,560		$3,300,000
Statement of retained earnings									Liabilities and stockholders' equity
BOY retained earnings				$1,577,840		$240,800			Accounts payable					$700,000		$450,000
Net income				434,720		96,400			Other current liabilities					900,000		650,000
Dividends				(200,000)		(40,000)			Bond payable (net)					-		812,800
Ending retained earnings				$1,812,560		$297,200			Other long-term liabilities					1,000,000		450,000
									Common stock					600,000		140,000
									APIC					1,000,000		500,000
									Retained earnings					1,812,560		297,200
														6,012,560		3,300,000

The parent uses the equity method of pre-consolidation investment bookkeeping. 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
[C]	Equity income	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	Investment in Subsidiary	Answer	Answer
	Noncontrolling Interest	Answer	Answer
[E]	Common Stock (Subsidiary)	Answer	Answer
	APIC (Subsidiary)	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	Noncontrolling interest	Answer	Answer
[Ibond]	Bond payable (net)	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	AnswerBOY Retained earnings-SubsidiaryDividends-SubsidiaryIncome attributable to NCIInterest incomeInvestment in bonds, netInvestment in Subsidiary	Answer	Answer
	Interest expense	Answer	Answer
	Investment in Subsidiary	Answer	Answer