g. Prepare the consolidated balance sheet on December 31, 2019 and the consolidated income

statement and consolidated statement of retained earnings for the year then ended after taking

into consideration the procedures in both parts (e) and (f)

LO2, 53. Consolidation several years subsequent to date of acquisition-Equity method (includes impairment of Goodwill) Assume a parent company acquired a subsidiary on January 1, 2016. The purchase price was $1,480,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following (A) assets: Original Useful Life [A] Asset Property, plant and equipment (PPE), net ........ Customer list.... Royalty agreement.... Database ... Goodwill..... Original Amount $ 120,000 320,000 240,000 300,000 500,000 $1.480,000 8 years 8 years 12 years 5 years Indefinite The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation Equity Method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Subsidiary Parent Subsidiary Parent Income statement: Sales................. $4,200,000 Cost of goods sold .......... (3,000,000) Gross profit 1,200,000 Equity income.............. 180,000 Operating expenses......... (780,000) Net income... $ 600,000 $2,405,000 (1,190,000) 1,215,000 Balance sheet: Assets Cash.... .......... Accounts receivable.................... Inventory ............... Equity investment...................... Property, plant and equipment (PPE), net... $ 320,000 620,000 760,000 2,500,000 3,200,000 $7,400,000 $ 510,000 460,000 594.000 (900,000) $ 315,000 1,096,000 $2,660,000 Statement of retained earnings: Beginning retained earnings... $1,800,000 Net income................ 600,000 Dividends . . . . . . . . . . . . . . ... (150,000) Ending retained earnings ..... $2,250,000 $ 628,000 315,000 JO (43,000) $ 900,000 Liabilities and stockholders' equity Accounts payable ...................... Accounts payable.. Accrued liabilities ...................... Long-term liabilities..................... Common stock ................. ... APIC................... .. Retained earnings ........... $ 510,000 700,000 1,000,000 940,000 1,900,000 2,250,000 $7,400,000 $ 190,000 246,000 664,000 150,000 510,000 900,000 $2,660,000 a. Compute the Equity Investment balance as of January 1, 2019. b. Show the computation to yield the $180,000 of equity income reported by the parent for the year ended December 31, 2019. Show the computation to yield the $2,500,000 Equity Investment account balance reported by the parent on December 31, 2019. d. Prepare the consolidation entries for the year ended December 31, 2019. e. Prepare the consolidation spreadsheet for the year ended December 31, 2019. Now, assume, prior to the issuance of the consolidated financial statements prepared in part (e), you perform an annual test for potential impairment of Goodwill. You decide to forego the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying value of the reporting unit. The fair value of the subsidiary is $2.3 million and the fair value of the identifiable net assets (other than Goodwill) is $2.2 million. Also, assume your company previously adopted Accounting Standards Update 2017-04: Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. Conduct your test for potential impairment of Goodwill, and prepare any required joumal entry as a result of that test. LO2, 53. Consolidation several years subsequent to date of acquisition-Equity method (includes impairment of Goodwill) Assume a parent company acquired a subsidiary on January 1, 2016. The purchase price was $1,480,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following (A) assets: Original Useful Life [A] Asset Property, plant and equipment (PPE), net ........ Customer list.... Royalty agreement.... Database ... Goodwill..... Original Amount $ 120,000 320,000 240,000 300,000 500,000 $1.480,000 8 years 8 years 12 years 5 years Indefinite The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation Equity Method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Subsidiary Parent Subsidiary Parent Income statement: Sales................. $4,200,000 Cost of goods sold .......... (3,000,000) Gross profit 1,200,000 Equity income.............. 180,000 Operating expenses......... (780,000) Net income... $ 600,000 $2,405,000 (1,190,000) 1,215,000 Balance sheet: Assets Cash.... .......... Accounts receivable.................... Inventory ............... Equity investment...................... Property, plant and equipment (PPE), net... $ 320,000 620,000 760,000 2,500,000 3,200,000 $7,400,000 $ 510,000 460,000 594.000 (900,000) $ 315,000 1,096,000 $2,660,000 Statement of retained earnings: Beginning retained earnings... $1,800,000 Net income................ 600,000 Dividends . . . . . . . . . . . . . . ... (150,000) Ending retained earnings ..... $2,250,000 $ 628,000 315,000 JO (43,000) $ 900,000 Liabilities and stockholders' equity Accounts payable ...................... Accounts payable.. Accrued liabilities ...................... Long-term liabilities..................... Common stock ................. ... APIC................... .. Retained earnings ........... $ 510,000 700,000 1,000,000 940,000 1,900,000 2,250,000 $7,400,000 $ 190,000 246,000 664,000 150,000 510,000 900,000 $2,660,000 a. Compute the Equity Investment balance as of January 1, 2019. b. Show the computation to yield the $180,000 of equity income reported by the parent for the year ended December 31, 2019. Show the computation to yield the $2,500,000 Equity Investment account balance reported by the parent on December 31, 2019. d. Prepare the consolidation entries for the year ended December 31, 2019. e. Prepare the consolidation spreadsheet for the year ended December 31, 2019. Now, assume, prior to the issuance of the consolidated financial statements prepared in part (e), you perform an annual test for potential impairment of Goodwill. You decide to forego the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying value of the reporting unit. The fair value of the subsidiary is $2.3 million and the fair value of the identifiable net assets (other than Goodwill) is $2.2 million. Also, assume your company previously adopted Accounting Standards Update 2017-04: Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. Conduct your test for potential impairment of Goodwill, and prepare any required joumal entry as a result of that test