Inferring consolidation entries from consolidated financial statementsCost method Assume a parent company acquired a subsidiary on January 1, 2015. The purchase price was $1,100,000 in excess of the subsidiarys book value of Stockholders Equity on the acquisition date, and that excess was assigned to the following [A] assets:

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, 2019, are as follows:

1. For the year ended December 31, 2019, reconcile the parent companys pre-consolidation net income of $1,700,000 to the consolidated balance of $1,810,000.

Do not use negative signs with your answers.

2. What was the subsidiarys retained earnings balance on the acquisition date? You should assume the Common Stock and APIC have not changed since the acquisition date. (Hint: You will need to use an account that does not change after the acquisition date.)

3. Provide the consolidation entries for the year ending December 31, 2019.

\begin{tabular}{|c|c|c|} \hline [A] Asset & Original Amount & \begin{tabular}{c} Original \\ Useful \\ Life \end{tabular} \\ \hline Property, plant and equipment (PPE), net & $340,000 & 17 years \\ \hline Patent & 360,000 & 12 years \\ \hline \multirow[t]{2}{*}{ Goodwill } & 400,000 & Indefinite \\ \hline & $1,100,000 & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline & Parent & Subsidiary & Consolidated \\ \hline \multicolumn{4}{|l|}{ Income statement } \\ \hline Sales & $7,500,000 & $1,650,000 & 9,150,000 \\ \hline Cost of goods sold & (4,500,000) & (890,000) & (5,390,000) \\ \hline Gross profit & 3,000,000 & 760,000 & 3,760,000 \\ \hline Investment income & 100,000 & - & - \\ \hline Operating expenses & (1,400,000) & (500,000) & (1,950,000) \\ \hline Net income & $1,700,000 & $260,000 & $1,810,000 \\ \hline \multicolumn{4}{|l|}{ Statement of retained earnings } \\ \hline BOY retained earnings & 2,000,000 & 840,000 & 2,240,000 \\ \hline Net income & 1,700,000 & 260,000 & 1,810,000 \\ \hline Dividends & (200,000) & (100,000) & (200,000) \\ \hline Ending retained earnings & $3,500,000 & $1,000,000 & $3,850,000 \\ \hline \multicolumn{4}{|l|}{ Balance sheet } \\ \hline \multicolumn{4}{|l|}{ Assets } \\ \hline Cash & 800,000 & 420,000 & 1,220,000 \\ \hline Accounts receivable & 1,200,000 & 380,000 & 1,580,000 \\ \hline Inventory & 1,900,000 & 490,000 & 2,390,000 \\ \hline Equity investment & 1,760,000 & - & - \\ \hline Property, plant \& equipment, net & 6,000,000 & 910,000 & 7,150,000 \\ \hline Patent list & & & 210,000 \\ \hline \multirow[t]{2}{*}{ Goodwill } & - & - & 400,000 \\ \hline & $11,660,000 & $2,200,000 & $12,950,000 \\ \hline Liabilities and stockholders' equity & - & & \\ \hline Accounts payable & 900,000 & 150,000 & 1,050,000 \\ \hline Accrued liabilities & 1,340,000 & 240,000 & 1,580,000 \\ \hline Long-term liabilities & 4,000,000 & 550,000 & 4,550,000 \\ \hline Common stock & 720,000 & 110,000 & 720,000 \\ \hline APIC & 1,200,000 & 150,000 & 1,200,000 \\ \hline \multirow[t]{2}{*}{ Retained earnings } & 3,500,000 & 1,000,000 & 3,850,000 \\ \hline & $11,660,000 & $2,200,000 & $12,950,000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline Parent Income (cost method) & & $ & 0 \\ \hline Deduct: p% of subsidiary dividends & & & 0 \\ \hline Add: & & & 0 \\ \hline Deduc & & & 0 \\ \hline Parent Income (equity method) & & $ & 0 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline & & urn & & \\ \hline & & & Debit & Credit \\ \hline [AD]] & & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline [C] & & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline [E] & Common Stoc & & 0 & 0 \\ \hline & APIC & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline [A] & PPE, net & & 0 & 0 \\ \hline & Patent & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline [D] & & & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline & Patent & & 0 & 0 \\ \hline \end{tabular}