eBook Print Question 12 Partially correct Mark 0.28 out of 1.00 Flag question Edit question Prepare consolidation spreadsheet for continuous sale of inventory-Cost method A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $1,010,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets: Property, plant & equipment Customer list Original Amount Original Useful Life 270,000 10 years 170,000 8 years 150,000 8 years 120,000 Indefinite Royalty agreement Goodwill 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 2015 and 2016: Inventory Gross Profit Remaining in Receivable Sales Unsold Inventory (Payable) 2016 $44,000 $12,000 $32,000 $64,000 $14,500 $19,000 2015 The inventory not remaining at the end of a given year is sold to unaffiliated entities outside of the consolidated group during the next year. The parent uses the cost method of pre- consolidation Equity Investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales 14,350,000 $800,000 Assets Cost of goods sold (3,050,000) (480,000) Cash $650,000 $320,000 Gross profit 1,300,000 320,000 Accounts receivable 560,000 180,000 Income (loss) from subsidiary 15,000 Inventory 850,000 250,000 Operating expenses (830,000) (200,000) Equity investment 1,010,000 Net income $485,000 $120,000 Property, plant & equipment 4,000,000 420,000 Statement of retained earnings $7,070,000 $1,170,000 BOY retained carnings $2,000,000 $475,000 Liabilities and stockholders equity Net income 485.000 120,000 Accounts payable $350,000 $100,000 Dividends (125,000) (15,000) Other current liabilities 400,000 125,000 Ending retained earnings $2,360,000 $520,000 Long-term liabilities 2,500,000 260,000 Common stack 700,000 50,000 APIC 760,000 55,000 Retained eamings 2,360,000 580,000 $7,070,000 $1,170,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE), net $ OX Customer List OX Royalty Agreement OX OX Goodwill 0 Net amortization $ Ox $ 0 x $ UX $ Jan. 1 2013 0 x $ 2013 December 31, 2014 2015 UX $ UX $ 2016 OX OX UX UX UX 100% Unamortized AAP - Dr (Cr) Property plant and equipment (PPE), net $ Customer List Royalty Agreement Goodwill Nerunamortized $ 0X OX OX OX OX OX OX Ox $ 0 X $ OX b. Compute the amount of the beginning of year [AD]] adjustment necessary for the consolidation of the financial statements for the year ended December 31, 2016. Do not use negative signs with your answers below. Change in RE(S) thru BOY $ Cumulative AAP amort thru BOY BOY Upstream IP ADJ Amount $ Ox OX e X 0 0 e 0 0 C. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation Journal Description Debit Credit [AD]] Equity investment 0 x 0 BOY Retained earnings-Subsidiary 0 Ox 0 X [C] Income (loss) from subsidiary 0 X Dividends 0 OX [E] BOY Common stock (Subsidiary) 0 X BOY APIC (Subsidiary) 0 X 0 BOY Retained earnings-Subsidiary OX 0 Equity investment 0 OX [A] PPE, net 0 x Customer list 0 X 0 Royalty Agreement 0 X 0 Goodwill e 0 X 0 Equity investment 0 OX [D] Operating expenses 0 x 0 PPE, net 0 0 X Customer List 0 OX Royalty Agreement 0 OX [lcogs] Equity investment 0 X 0 Cost of goods sold 0 0 X To recognize prior year profit on intercompany sales. [lsales) Sales 0X 0 Cost of goods sold 0 0x [lcogs] Cost of goods sold 0 X 0 Inventory 0 0 X To defer current period profit on intercompany sales. [lpay] Accounts payable 0X 0 Accounts receivable 0 OX x Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Consolidation Worksheet Income statement Parent Subsidiary Debit Credit Consolidated Sales $4,350,000 $800,000 [lsales] OX 0 X Cost of goods sold (3,050,000) (480,000) [lcogs] OX 0 x [lcogs) Ox 0 x [lsales) Gross profit 1,300,000 320,000 OX Equity income 15,000 [C] OX Operating expenses (830,000) (200,000) [D] [ OX OX Net income $485,000 $120,000 $ 0 x Statement of retained earnings BOY retained earnings $2,000,000 $475,000 [E] OX 0X [AD] $ Ox Net income 485,000 120,000 0x Dividends (125,000) (15,000) 0 x [C] Ox Ending retained earnings $2,360,000 $580,000 $ OX Balance sheet S Assets $ 0 X Cash Accounts receivable Inventory Equity investment $650,000 560,000 850,000 1,010,000 $320,000 180,000 250,000 0 X OX 0 OX 0 x [lpay] 0 x [lcogs] OX [E] 0X [A] OXD 0 X [D] 0X [D] 4,000,000 420,000 OX 0 X [AD]] [lcogs] [A] [A] [A] [A] ] 0X PPE, net Customer List Royalty Agreement Goodwill OX OX OX OX $7,070,000 $1,170,000 $ 0 x OX $ 0X OX Liabilities and equity Accounts payable Other currentliabilities Long-term liabilities Common stock APIC Retained earnings OX $350,000 $100,000 [lpay 400,000 125,000 2,500,000 260,000 700,000 50,000 ] [E] 760,000 55,000 [E [E] 2,360,000 580,000 $7,070,000 $1,170,000 OX OX OX OX 0 X $ Ox $ 0 x $ OX eBook Print Question 12 Partially correct Mark 0.28 out of 1.00 Flag question Edit question Prepare consolidation spreadsheet for continuous sale of inventory-Cost method A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $1,010,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets: Property, plant & equipment Customer list Original Amount Original Useful Life 270,000 10 years 170,000 8 years 150,000 8 years 120,000 Indefinite Royalty agreement Goodwill 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 2015 and 2016: Inventory Gross Profit Remaining in Receivable Sales Unsold Inventory (Payable) 2016 $44,000 $12,000 $32,000 $64,000 $14,500 $19,000 2015 The inventory not remaining at the end of a given year is sold to unaffiliated entities outside of the consolidated group during the next year. The parent uses the cost method of pre- consolidation Equity Investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales 14,350,000 $800,000 Assets Cost of goods sold (3,050,000) (480,000) Cash $650,000 $320,000 Gross profit 1,300,000 320,000 Accounts receivable 560,000 180,000 Income (loss) from subsidiary 15,000 Inventory 850,000 250,000 Operating expenses (830,000) (200,000) Equity investment 1,010,000 Net income $485,000 $120,000 Property, plant & equipment 4,000,000 420,000 Statement of retained earnings $7,070,000 $1,170,000 BOY retained carnings $2,000,000 $475,000 Liabilities and stockholders equity Net income 485.000 120,000 Accounts payable $350,000 $100,000 Dividends (125,000) (15,000) Other current liabilities 400,000 125,000 Ending retained earnings $2,360,000 $520,000 Long-term liabilities 2,500,000 260,000 Common stack 700,000 50,000 APIC 760,000 55,000 Retained eamings 2,360,000 580,000 $7,070,000 $1,170,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE), net $ OX Customer List OX Royalty Agreement OX OX Goodwill 0 Net amortization $ Ox $ 0 x $ UX $ Jan. 1 2013 0 x $ 2013 December 31, 2014 2015 UX $ UX $ 2016 OX OX UX UX UX 100% Unamortized AAP - Dr (Cr) Property plant and equipment (PPE), net $ Customer List Royalty Agreement Goodwill Nerunamortized $ 0X OX OX OX OX OX OX Ox $ 0 X $ OX b. Compute the amount of the beginning of year [AD]] adjustment necessary for the consolidation of the financial statements for the year ended December 31, 2016. Do not use negative signs with your answers below. Change in RE(S) thru BOY $ Cumulative AAP amort thru BOY BOY Upstream IP ADJ Amount $ Ox OX e X 0 0 e 0 0 C. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation Journal Description Debit Credit [AD]] Equity investment 0 x 0 BOY Retained earnings-Subsidiary 0 Ox 0 X [C] Income (loss) from subsidiary 0 X Dividends 0 OX [E] BOY Common stock (Subsidiary) 0 X BOY APIC (Subsidiary) 0 X 0 BOY Retained earnings-Subsidiary OX 0 Equity investment 0 OX [A] PPE, net 0 x Customer list 0 X 0 Royalty Agreement 0 X 0 Goodwill e 0 X 0 Equity investment 0 OX [D] Operating expenses 0 x 0 PPE, net 0 0 X Customer List 0 OX Royalty Agreement 0 OX [lcogs] Equity investment 0 X 0 Cost of goods sold 0 0 X To recognize prior year profit on intercompany sales. [lsales) Sales 0X 0 Cost of goods sold 0 0x [lcogs] Cost of goods sold 0 X 0 Inventory 0 0 X To defer current period profit on intercompany sales. [lpay] Accounts payable 0X 0 Accounts receivable 0 OX x Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Consolidation Worksheet Income statement Parent Subsidiary Debit Credit Consolidated Sales $4,350,000 $800,000 [lsales] OX 0 X Cost of goods sold (3,050,000) (480,000) [lcogs] OX 0 x [lcogs) Ox 0 x [lsales) Gross profit 1,300,000 320,000 OX Equity income 15,000 [C] OX Operating expenses (830,000) (200,000) [D] [ OX OX Net income $485,000 $120,000 $ 0 x Statement of retained earnings BOY retained earnings $2,000,000 $475,000 [E] OX 0X [AD] $ Ox Net income 485,000 120,000 0x Dividends (125,000) (15,000) 0 x [C] Ox Ending retained earnings $2,360,000 $580,000 $ OX Balance sheet S Assets $ 0 X Cash Accounts receivable Inventory Equity investment $650,000 560,000 850,000 1,010,000 $320,000 180,000 250,000 0 X OX 0 OX 0 x [lpay] 0 x [lcogs] OX [E] 0X [A] OXD 0 X [D] 0X [D] 4,000,000 420,000 OX 0 X [AD]] [lcogs] [A] [A] [A] [A] ] 0X PPE, net Customer List Royalty Agreement Goodwill OX OX OX OX $7,070,000 $1,170,000 $ 0 x OX $ 0X OX Liabilities and equity Accounts payable Other currentliabilities Long-term liabilities Common stock APIC Retained earnings OX $350,000 $100,000 [lpay 400,000 125,000 2,500,000 260,000 700,000 50,000 ] [E] 760,000 55,000 [E [E] 2,360,000 580,000 $7,070,000 $1,170,000 OX OX OX OX 0 X $ Ox $ 0 x $ OX