LO, 4 57. Comprehensive consolidation subsequent lo date of anguisition, AAP computatimtotil upstream and downstream intercompany inventory profits, downstream intercompany depreciable asset gain-Equity method A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2012, for 5690,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Commo Stock, 5418,600, and Retained Earnings, $45,080 On January 1, 2012, the subsidiary's recorded book values were equal to fair values for all items except four: (1) accounts receivable had a book value of S128,800 and a fair value of $115,920 2 buildings and equipment, net had a book value of $112,700 and a fair value of $120,660, (3) the Cus tomer List intangible asset had a book value of $32,200 and a fair value of 5167.440, and (4) notes pay able had a book value of $69,000 and a fair value of $64,400. Both companies sse the FIFO inventory method and sell all of their inventories at least once per year. The net balance of accounts are collected in the following year. On the acquisition date, the subsidiary's buildings and equipment net had a remaining useful life of 6 years, the Customer List had a remaining useful life of 7 years, and notes payable had a remaining term of 4 years. On January 1, 2015, the parent sold a bailding to the subsidiary for $209.300. On this date, the building was carried on the subsidiary's books (net of accumulated depreciation) at $161,000. Bot companies estimated that the building has a remaining life of 6 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 25 per cent of selling price (regardless of the direction of the sale). During 2016, intercompany sales amoun to $48,300, of which $25,760 of merchandise remains in the ending inventory of the cember 31, 2016, $12,880 of these intercompany sales rema December 31, 2015 inventory includes $38,640 of merchandise purchased in the preceding year from the parent. During 2015, intercompany sales amount to $60,000, and on December 31. 2015, $7,000 of these intercompany sales remained unpaid. Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2016. The parent uses the equity method of pre-consolidation investment bookkoeping. Parent Subsidiary Parent Balance sheet 1,564,000 $579.600 Assets (791,200)347.70 Cash Sales. Cost of goods sold". Gross profit Deprec. & amort expense Operating expenses Total expenses $ 109.940 $ 48.300 156,400 30,820 Inventories 502.320(123,740) Buildings and equipment, net 288,800 Income fossi from subsidary Net income. 540,960(154,560 Other assets Customer list 291410$ 77280Investment in 59.570 291.410 77.280 Investment in subsidiary. Total assets $2.145,900 $998.200 Statement of retained earnings: Liabilities and stociholders equity 939,550 $354.200 Aocounts payabile 291,410 Beg retained eanings Dividends Ending retained earnings 7,280 Notes payable 45.080) Other labilities 1,037.760 $386.400 Common stock, s 103 500 $ 41,400 61,0002800 70,8406,000 Retained earnings Total lablities and equity 1,037,760 388,400 S2145.900 $998.200 Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP. a. b Calculate and organize the profits and losses on intercompany transactions and balances c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders equity of the subsidiary Recoastruct the activity in the parent's pre-consolidation Equity lnvestment T-account for the year of consolidation. d e Complete the consolidating entries according to the C-E-A-D-I seqaence and complete the consolidation worksheet LO, 4 57. Comprehensive consolidation subsequent lo date of anguisition, AAP computatimtotil upstream and downstream intercompany inventory profits, downstream intercompany depreciable asset gain-Equity method A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2012, for 5690,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Commo Stock, 5418,600, and Retained Earnings, $45,080 On January 1, 2012, the subsidiary's recorded book values were equal to fair values for all items except four: (1) accounts receivable had a book value of S128,800 and a fair value of $115,920 2 buildings and equipment, net had a book value of $112,700 and a fair value of $120,660, (3) the Cus tomer List intangible asset had a book value of $32,200 and a fair value of 5167.440, and (4) notes pay able had a book value of $69,000 and a fair value of $64,400. Both companies sse the FIFO inventory method and sell all of their inventories at least once per year. The net balance of accounts are collected in the following year. On the acquisition date, the subsidiary's buildings and equipment net had a remaining useful life of 6 years, the Customer List had a remaining useful life of 7 years, and notes payable had a remaining term of 4 years. On January 1, 2015, the parent sold a bailding to the subsidiary for $209.300. On this date, the building was carried on the subsidiary's books (net of accumulated depreciation) at $161,000. Bot companies estimated that the building has a remaining life of 6 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 25 per cent of selling price (regardless of the direction of the sale). During 2016, intercompany sales amoun to $48,300, of which $25,760 of merchandise remains in the ending inventory of the cember 31, 2016, $12,880 of these intercompany sales rema December 31, 2015 inventory includes $38,640 of merchandise purchased in the preceding year from the parent. During 2015, intercompany sales amount to $60,000, and on December 31. 2015, $7,000 of these intercompany sales remained unpaid. Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2016. The parent uses the equity method of pre-consolidation investment bookkoeping. Parent Subsidiary Parent Balance sheet 1,564,000 $579.600 Assets (791,200)347.70 Cash Sales. Cost of goods sold". Gross profit Deprec. & amort expense Operating expenses Total expenses $ 109.940 $ 48.300 156,400 30,820 Inventories 502.320(123,740) Buildings and equipment, net 288,800 Income fossi from subsidary Net income. 540,960(154,560 Other assets Customer list 291410$ 77280Investment in 59.570 291.410 77.280 Investment in subsidiary. Total assets $2.145,900 $998.200 Statement of retained earnings: Liabilities and stociholders equity 939,550 $354.200 Aocounts payabile 291,410 Beg retained eanings Dividends Ending retained earnings 7,280 Notes payable 45.080) Other labilities 1,037.760 $386.400 Common stock, s 103 500 $ 41,400 61,0002800 70,8406,000 Retained earnings Total lablities and equity 1,037,760 388,400 S2145.900 $998.200 Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP. a. b Calculate and organize the profits and losses on intercompany transactions and balances c. Compute the pre-consolidation Equity Investment account beginning and ending balances starting with the stockholders equity of the subsidiary Recoastruct the activity in the parent's pre-consolidation Equity lnvestment T-account for the year of consolidation. d e Complete the consolidating entries according to the C-E-A-D-I seqaence and complete the consolidation worksheet