Consolidation worksheet for gain on constructive retirement of subsidiarys debt with no AAPCost method Assume that a Parent company acquires a 90% interest in its Subsidiary on January 1, 2012. On the date of acquisition, the fair value of the 90 percent controlling interest was $1,080,000 and the fair value of the 10 percent noncontrolling interest was $120,000. On January 1, 2012, the book value of net assets equaled $1,200,000 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, 2012, the retained earnings of the subsidiary was $189,000.

On December 31, 2013, the Subsidiary company issued $1,125,000 (face) 7 percent, five-year bonds to an unaffiliated company for $1,222,413 (i.e., the bonds had an effective yield of 5 percent). 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 $19,483 per year. The following schedule provides the bond-amortization schedule from the initial issuance date.

Year	Cash Payment	Amortization of (Prem) Disc.	Interest Expense	Carrying Amount
Dec. 31, 2013				$1,222,413
Dec. 31, 2014	$78,750	$(19,483)	$59,267	1,202,931
Dec. 31, 2015	78,750	(19,483)	59,267	1,183,448
Dec. 31, 2016	78,750	(19,483)	59,267	1,163,965
Dec. 31, 2017	78,750	(19,483)	59,267	1,144,483
Dec. 31, 2018	78,750	(19,483)	59,267	1,125,000

On December 31, 2015, the Parent paid $1,096,008 to purchase all of the outstanding Subsidiary company bonds (i.e., the bonds had an effective yield of 8 percent). The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $9,664 per year. The following schedule provides the bond-amortization schedule for the Parents bond investment.

Year	Cash Payment	Amortization of (Prem) Disc.	Interest Income	Carrying Amount
Dec. 31, 2015				$1,096,008
Dec. 31, 2016	$78,750	$9,664	$88,414	1,105,672
Dec. 31, 2017	78,750	9,664	88,414	1,115,336
Dec. 31, 2018	78,750	9,664	88,414	1,125,000

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, 2016:

				Parent		Subsidiary								Parent		Subsidiary
Income statement									Balance sheet
Sales				$9,750,000		$1,200,000			Assets
Cost of goods sold				(7,125,000)		(780,000)			Cash					$1,162,500		$750,000
Gross profit				2,625,000		420,000			Accounts receivable					1,687,500		975,000
Operating and other expenses				(1,725,000)		(270,000)			Inventory					1,725,000		1,265,198
Bond interest income				88,414		-			PPE, net					10,220,250		1,875,000
Bond interest expense				-		(59,267)			Investment in subsidiary					1,080,000		-
Total expenses				(1,636,586)		(329,267)			Investment in bonds, net					1,105,672		-
Income from subsidiary				27,000		-								$16,980,922		$4,865,198
Net income				$1,015,414		$90,733			Liabilities and stockholders' equity
Statement of retained earnings									Accounts payable					$1,125,000		$717,000
BOY retained earnings				$5,028,911		$337,500			Other current liabilities					1,500,000		900,000
Net income				1,015,414		90,733			Bonds payable					-		1,163,965
Dividends				(277,500)		(30,000)			Other long-term liabilities					1,669,597		675,000
Ending retained earnings				$5,766,825		$398,233			Common stock					1,579,500		223,500
									APIC					5,340,000		787,500
									Retained earnings					5,766,825		398,233
														16,980,922		4,865,198

Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2016.

Round answers to the nearest whole number.

Consolidation Journal
	Description	Debit	Credit
[ADJ]	Answer	Answer	Answer
	Answer	Answer	Answer
[C]	Income from subsidiary	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
	Noncontrolling Interest	Answer	Answer
[E]	Common Stock (Subsidiary)	Answer	Answer
	APIC (Subsidiary)	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
	Noncontrolling interest	Answer	Answer
[Ibond]	Bond payable, net	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
	Interest expense	Answer	Answer
	Investment in Subsidiary	Answer	Answer

Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributable to NCI and Dividends.

Consolidation Worksheet
		Parent		Subsidiary			Debit		Credit			Consolidated
Income Statement
Sales		$9,750,000		$1,200,000								$Answer
Cost of goods sold		(7,125,000)		(780,000)								Answer
Gross profit		2,625,000		420,000								Answer
Operating and other expenses		(1,725,000)		(270,000)								Answer
Bond interest income		88,414		-		[Ibond]	Answer					Answer
Bond interest expense		-		(59,267)					Answer		[Ibond]	Answer
Total expenses		(1,636,586)		(329,267)								Answer
Income from Subsidiary		27,000		-		[C]	Answer					Answer
Consolidated Net Income		1,015,414		90,733								Answer
Income attributable to NCI		-		-		[C]	Answer					Answer
Income attributable to Control Int		$1,015,414		$90,733								$Answer
Retained Earnings Statement
Beg. Ret. Earnings		$5,028,911		$337,500		[E]	Answer		Answer		[ADJ]	$Answer
Income attributable to Control Int		1,015,414		90,733								Answer
Dividends Declared		(277,500)		(30,000)					Answer		[C]	Answer
Ending Retained Earnings		$5,766,825		$398,233								$Answer
Balance Sheet
Cash		$1,162,500		$750,000								Answer
Accounts receivable		1,687,500		975,000								Answer
Inventories		1,725,000		1,265,198								Answer
Property, Plant & Equipment, net		10,220,250		1,875,000								Answer
Investment in Subsidiary		1,080,000		-		[ADJ]	Answer		Answer		[E]	Answer
									Answer		[Ibond]
Investment in Bond (net)		1,105,672		-					Answer		[Ibond]	Answer
Total Assets		$16,980,922		$4,865,198								$Answer
Accounts Payable		$1,125,000		$717,000								Answer
Other current liabilities		1,500,000		900,000								Answer
Bond Payable (net)				1,163,965		[Ibond]	Answer					Answer
Other long-term liabilities		1,669,597		675,000								Answer
Common Stock		1,579,500		223,500		[E]	Answer					Answer
APIC		5,340,000		787,500		[E]	Answer					Answer
Retained Earnings		5,766,825		398,233								Answer
Noncontrolling Interest									Answer		[C]	Answer
									Answer		[E]
Total Liabilities and Equity		$16,980,922		$4,865,198			$Answer		$Answer			$Answer