Chapter 4 1 Consolidated Financial Statements and Intercompany Transactions 52. prepare consolidation spreadsheet for intercompany sale of equipment-Equity method Assume that a parent company acquired its subsidiary on January 1, 2013, at a purchase price that was L04 $600,000 in excess of the book value Of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $ 100,000 was assigned to a Patent, and $200,000 to an unrecorded Customer List owned by the subsidiary. The Patent asset is being depreciated over its 10-year legal life and the Customer List is being amortized over a 5-year period. Amortization is computed on a straight-line basis with no salvage value. The remaining $300,000 of the purchase price was assigned to Goodwill. In January 2015, the parent sold Equipment to its wholly owned subsidiary for a cash price of $150,000. The parent had acquired the equipment at a cost of $ 175,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The parent had depreci- a ted the equipment for 5 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciated the equipment over its remaining 5-year useful life. Following are financial statements of the parent and its subsidiary for the year ended December 31 , 2016. The parent uses the equity method to account for its Equity Investment. The Customer List and patent assets were amortized as part of the parent's equity method accounting. 255 Income statement: Sales... Cost of goods sold.. Gross profit. .... Income (loss) from subsidiary.. Operating expenses... .. Net income. ..... ..... .. Statement of retained earnings: BOY retained earnings.. Net income. Dividends .... ..... , EOY retained earnings ...... Parent 319,220 $5,213,116 (295,764) Subsidiary (662,480) 356,720 573,300 356,720 (50,960) 879,060 Balance sheet: Assets Cash Accounts receivable Inventory.. PPE, net . Equity investment.. Parent $ 167,196 1 ,561 ,ooo $14,973,368 Liabilities and stockholders' equity Accounts payable Other current liabilities Long-term liabilities . Common stock.. APIC Retained earnings $ 900,920 1 ,061 ,480 493,276 3,621 ,520 6,396,172 Subsidiary $ 508,056 1 ,401 ,400 2,624,440 $5,629,536 $ 453,544 586,040 315,952 394,940 879,060 $5,629,536 a. b. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [11 entries for the year of sale. Compute the remaining portion of the deferred gain at January 1, 2016. Show the computation to yield the $319,220 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2016. Compute the Equity Investment balance of $1 ,952,452 at December 31, 2016. Prepare the consolidation entries for the year ended December 31, 2016. Prepare the consolidation spreadsheet for the year ended December 31, 2016.