Intercompany Transactions

Assume a parent company acquired 100% of a subsidiary on 1/1/X1 at a purchase price that was $300,000 in excess of the subsidiarys book value. Of that excess, $200,000 was assigned to an unrecorded patent that is being amortized over 10 years. The remaining $100,000 was assigned to goodwill. In the year X2, the subsidiary sold land to the parent for $100,000. The land was reported on the balance sheet of the subsidiary for $70,000 at the date of sale. The financial statements for the parent and subsidiary for the year ended 12/31/X3 are attached in the Excel spreadsheet.

• Prepare the consolidated financial statements at 12/31/X3 by placing the appropriate entries in their respective debit/credit column cells.
• Indicate, in the blank column cell to the left of the debit and credit column cells if the entry is a [C], [E], [A], [D] or [I]entry.
• Show calculations on entries.

Consolidation Entries Parent Subsidiary Dr Consolidated 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 Balance Sheet: Assets Cash Accounts receivable Inventory PPE, net Patent Goodwill Equity investment 3,000,000 (2,100,000) 375,000 (225,000) 32,500 (570,000) 362,500 900,000 150,000 0 (97,500) 52,500 0 1,477,200 362,500 (83,375) 1,756,325 193,750 52,500 (6,825) 239,425 0 0 341,566 384,000 582,000 2,799,600 121,211 87,000 111,750 206,750 505,675 4,612,841 0 526,711 0 0 Liabilities & stockholders' equity Accounts payable Other current liabilities Long-term liabilities Common stock 224,700 276,816 1,500,000 490,500 364,500 1,756,325 4,612,841 44,760 61,276 125,000 25,000 31,250 239,425 526,711 0 APIC Retained earnings 0 Consolidation Entries Parent Subsidiary Dr Consolidated 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 Balance Sheet: Assets Cash Accounts receivable Inventory PPE, net Patent Goodwill Equity investment 3,000,000 (2,100,000) 375,000 (225,000) 32,500 (570,000) 362,500 900,000 150,000 0 (97,500) 52,500 0 1,477,200 362,500 (83,375) 1,756,325 193,750 52,500 (6,825) 239,425 0 0 341,566 384,000 582,000 2,799,600 121,211 87,000 111,750 206,750 505,675 4,612,841 0 526,711 0 0 Liabilities & stockholders' equity Accounts payable Other current liabilities Long-term liabilities Common stock 224,700 276,816 1,500,000 490,500 364,500 1,756,325 4,612,841 44,760 61,276 125,000 25,000 31,250 239,425 526,711 0 APIC Retained earnings 0