Consolidation worksheet for gain on constructive retirement of subsidiarys debt with no AAPEquity 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 $720,000 and the fair value of the 10 percent noncontrolling interest was $80,000. On January 1, 2012, 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, 2013, the Subsidiary company issued $750,000 (face) 7 percent, five-year bonds to an unaffiliated company for $814,942 (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 $12,988 per year. On December 31, 2015, the Parent paid $730,672 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 $6,443 per year. The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2016:

Parent Subsidiary Parent Subsidiary Balance sheet Income statement Sales Cost of goods sold Gross profit Equity income Bond interest income Bond interest expense Operating expenses $6,500,000 800,000 Assets (4,750,000) (520,000) Cash $775,000 $500,000 1,125,000 650,000 1,150,000 6,813,500 1,250,000 1,750,000 280,000 Accounts receivable 35,008 843,465 Inventory PPE, net Equity investment 58,943 (39,512) 884,402 (1,150,000) (180,000) Investment in bonds 737,114 $693,951 $60,488 $11,485,016 $3,243,465 Net income Statement of retained earnings BOY retained earnings Net income Dividends Liabilities and stockholders equity $3,500,000 $225,000 Accounts payable $750,000 $478,000 600,000 775,977 693,951 60,488 Current liabilities 1,000,000 185,000) (20,000) Bonds payable 4,008,951 $265,488 Ending retained earnings Long-term liabilities Common stock APIC Retained earnings 1,113,065 450,000 1,053,000 149,000 3,560,000 525,000 265,488 11,485,016 3,243,465 4,008,951 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, 2016 Round answers to the nearest whole number. Consolidation Journal Description Debit Credit CEquity income Investment in Subsidiary Noncontrolling Interest [E Common Stock (Subsidiary) 0 APIC (Subsidiary) Noncontrolling interest [lbond] Bond payable (net) Interest expense 0 0 Investment in Subsidiary 0 0 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 $6,500,000 $800,000 Cost of goods sold (4,750,000) (520,000) Gross profit 1,750,000280,000 Operating expenses (1,150,000) (180,000) Bond interest income 58,943 - [lbond] Bond interest expense (39,512) 0 [bond] Total expenses (1,091,057) (219,512) Equity Income from Subsidiary 35,008 Consolidated Net Income 693,951 60,488 Income attributable to NCI Income attributable to Control $693,951 $60,488 Retained Earnings Statement Beg. Ret. Earnings $3,500,000 $225,000 Income attributable to Control Int 693,951 60,488 Dividends Declared (185,000) (20,000) [C Ending Retained Earnings $4,008,951 $265,488 Balance Sheet Cash $775,000 $500,000 Accounts receivable 1,125,000 650,000 Inventories 1,150,000 843,465 Property, Plant & Equipment, net 6,813,500 1,250,000 Investment in Subsidiary 884,402 [C 0 0 [lbond] Investment in Bond (net) 737,114 0 [lbond] Total Assets $11,485,016 $3,243,465 Accounts Payable $750,000 $478,000 Other current liabilities 1,000,000 600,000 Bond Payable (net) 775,977 [lbond] Long-term liabilities 1,113,065 450,000 ,113,065 450,000 ,053,000 149,000 [E] 3,560,000 525,000 4,008,951 265,488 Long-term liabilities Common Stock 0 APIC E] Retained Earnings Noncontrolling Interest 0 0 Total Liabilities and Equity $11,485,016 $3,243,465 Parent Subsidiary Parent Subsidiary Balance sheet Income statement Sales Cost of goods sold Gross profit Equity income Bond interest income Bond interest expense Operating expenses $6,500,000 800,000 Assets (4,750,000) (520,000) Cash $775,000 $500,000 1,125,000 650,000 1,150,000 6,813,500 1,250,000 1,750,000 280,000 Accounts receivable 35,008 843,465 Inventory PPE, net Equity investment 58,943 (39,512) 884,402 (1,150,000) (180,000) Investment in bonds 737,114 $693,951 $60,488 $11,485,016 $3,243,465 Net income Statement of retained earnings BOY retained earnings Net income Dividends Liabilities and stockholders equity $3,500,000 $225,000 Accounts payable $750,000 $478,000 600,000 775,977 693,951 60,488 Current liabilities 1,000,000 185,000) (20,000) Bonds payable 4,008,951 $265,488 Ending retained earnings Long-term liabilities Common stock APIC Retained earnings 1,113,065 450,000 1,053,000 149,000 3,560,000 525,000 265,488 11,485,016 3,243,465 4,008,951 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, 2016 Round answers to the nearest whole number. Consolidation Journal Description Debit Credit CEquity income Investment in Subsidiary Noncontrolling Interest [E Common Stock (Subsidiary) 0 APIC (Subsidiary) Noncontrolling interest [lbond] Bond payable (net) Interest expense 0 0 Investment in Subsidiary 0 0 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 $6,500,000 $800,000 Cost of goods sold (4,750,000) (520,000) Gross profit 1,750,000280,000 Operating expenses (1,150,000) (180,000) Bond interest income 58,943 - [lbond] Bond interest expense (39,512) 0 [bond] Total expenses (1,091,057) (219,512) Equity Income from Subsidiary 35,008 Consolidated Net Income 693,951 60,488 Income attributable to NCI Income attributable to Control $693,951 $60,488 Retained Earnings Statement Beg. Ret. Earnings $3,500,000 $225,000 Income attributable to Control Int 693,951 60,488 Dividends Declared (185,000) (20,000) [C Ending Retained Earnings $4,008,951 $265,488 Balance Sheet Cash $775,000 $500,000 Accounts receivable 1,125,000 650,000 Inventories 1,150,000 843,465 Property, Plant & Equipment, net 6,813,500 1,250,000 Investment in Subsidiary 884,402 [C 0 0 [lbond] Investment in Bond (net) 737,114 0 [lbond] Total Assets $11,485,016 $3,243,465 Accounts Payable $750,000 $478,000 Other current liabilities 1,000,000 600,000 Bond Payable (net) 775,977 [lbond] Long-term liabilities 1,113,065 450,000 ,113,065 450,000 ,053,000 149,000 [E] 3,560,000 525,000 4,008,951 265,488 Long-term liabilities Common Stock 0 APIC E] Retained Earnings Noncontrolling Interest 0 0 Total Liabilities and Equity $11,485,016 $3,243,465