LO2 Consolidation at the end of the first year subseqment to date of acquisition Equity method Assume that the parent company acquires its subsidiary on January 1. 2016, by exchanging 41,300 shares of its ST par value Common Stock, with a market value on the acquisition date of S36 per share. To all of the outstanding voting shares of the acquiree. You have been charged with preparing solidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's individual net assets had fair values that equaled wheir hook values except for the following: PPE assets are undervalued by $81.000 depreciation 15.400 per year), and the subsidiary has an unrecorded Patent that has a fair value of $201.000 am zation $32.625 per year. Any remaining difference between the purchase price and rence between the purchase price and the fair value of the identifiable assets results from expected synergies that are expected to be realized as a result of the business combination. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016: Parent Subsidiary Parent Subsidiary Income statement: Sales. Cost of goods sold....... Gross profit............. Equity income........... Operating expenses...... Net income..... $4,950,000 (3,465,000) 1,485.000 169,875 (940,500) $ 714,375 $1,485,000 (891,000) 594,000 Balance sheet: Assets Cash......... Accounts receivable.... Inventory Equity investment... Property, plant and equipment (PPE), net... $ 382,635 344,520 442,530 $ 275,355 633,600 960,300 1,632,690 3,629,340 $7,131,285 (386,100) $ 207,900 818,730 $1,988,415 Statement of retained earnings: BOY retained earnings.... $2,570,400 Net income............. 714,375 Dividends...... (144,180) Ending retained earnings.. $3,140,595 $ 767,250 207,900 (31,185) $ 943,965 $ 362,340 430,650 Liabilities and stockholders' equity Accounts payable... Accrued liabilities... Long-term liabilities .... Common stock.......... APIC....... ........ Retained earnings ..... 566,100 2,631,600 3,140,595 $7,131,285 $ 141,570 185,130 495,000 99,000 123,750 943,965 - $1,988,415 d. Prepare the journal entry to record the acquisition of the subsidiary b. Show the computations to yield the equity income of $169,875 reported by the parent in its income statement. c. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,632.690. d. Prepare the consolidation entries for the year ended December 31, 2016, e Prepare the consolidated spreadsheet for the year ended December 31, 2016. What additional assets have been recognized on the consolidated balance sheet that were not explicitly reported on the balance sheets of either the parent or the subsidiary? Why were they not previously reported in pre-acquisition financial statements of the parent or the subsidiary? baconenlldated holence chant at the end of the LO2
