Question
Inferring consolidation entries from consolidated financial statementsCost method Assume a parent company acquired a subsidiary on January 1, 2012. The purchase price was $1,192,000 in
Inferring consolidation entries from consolidated financial statementsCost method Assume a parent company acquired a subsidiary on January 1, 2012. The purchase price was $1,192,000 in excess of the subsidiarys book value of Stockholders Equity on the acquisition date, and that excess was assigned to the following [A] assets:
| [A] Asset | Original Amount | Original Useful Life |
|---|---|---|
| Property, plant and equipment (PPE), net | $300,000 | 20 years |
| Patent | 432,000 | 12 years |
| Goodwill | 460,000 | Indefinite |
| $1,192,000 |
The parent company uses the cost method of pre-consolidation Equity Investment bookkeeping. The Goodwill asset has been tested annually for impairment and has not been found to be impaired. Selected accounts from the parent, subsidiary, and consolidated financial statements for the year ended December 31, 2016, are as follows:
| Parent | Subsidiary | Consolidated | |
|---|---|---|---|
| Income statement | |||
| Sales | $9,075,000 | $1,970,000 | 11,045,000 |
| Cost of goods sold | (6,534,000) | (1,188,000) | (7,722,000) |
| Gross profit | 2,541,000 | 782,000 | 3,323,000 |
| Investment income | 30,800 | - | - |
| Operating expenses | (1,361,280) | (514,800) | (1,927,080) |
| Net income | $1,210,520 | $267,200 | $1,395,920 |
| Statement of retained earnings | |||
| BOY retained earnings | 6,328,440 | 1,013,000 | 6,564,440 |
| Net income | 1,210,520 | 267,200 | 1,395,920 |
| Dividends | (276,440) | (30,800) | (276,440) |
| Ending retained earnings | $7,262,520 | $1,249,400 | $7,683,920 |
| Balance sheet | |||
| Assets | |||
| Cash | 1,709,760 | 501,200 | 2,210,960 |
| Accounts receivable | 2,686,800 | 459,600 | 3,146,400 |
| Inventory | 3,520,200 | 589,800 | 4,110,000 |
| Equity investment | 2,062,000 | - | - |
| Property, plant & equipment | 12,752,640 | 1,091,400 | 14,069,040 |
| Patent list | 252,000 | ||
| Goodwill | - | - | 460,000 |
| $22,731,400 | $2,642,000 | $24,248,400 | |
| Liabilities and stockholders' equity | - | - | |
| Accounts payable | 1,328,640 | 188,760 | 1,517,400 |
| Accrued liabilities | 1,578,840 | 246,840 | 1,825,680 |
| Long-term liabilities | 5,550,000 | 660,000 | 6,210,000 |
| Common stock | 845,520 | 132,000 | 845,520 |
| APIC | 6,165,880 | 165,000 | 6,165,880 |
| Retained earnings | 7,262,520 | 1,249,400 | 7,683,920 |
| $22,731,400 | $2,642,000 | $24,248,400 |
f. Provide the consolidation entries for the year ending December 31, 2016.
| Consolidation Journal | |||
|---|---|---|---|
| Description | Debit | Credit | |
| [ADJ] | Equity investment
|
|
|
| BOY Retained Earnings
|
|
| |
| [C] | Investment income
|
|
|
| Dividends
|
|
| |
| [E] | Common Stock |
|
|
| APIC |
|
| |
| BOY Retained Earnings
|
|
| |
| Equity investment
|
|
| |
| [A] | PPE, net |
|
|
| Patent |
|
| |
| Goodwill
|
|
| |
| Investment income
|
|
| |
| [D] | operating expense |
|
|
| PPE, net
|
|
| |
| Patent |
|
| |
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Calculus Early Transcendentals
Authors: James Stewart
8th edition
978-1285741550
