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. Parent purchased Subsidiary on January 1, 2014. The excess of investment cost over book value of $210,000 was allocated entirely to a 10-year royalty

. Parent purchased Subsidiary on January 1, 2014. The excess of investment cost over book value of $210,000 was allocated entirely to a 10-year royalty agreement.

Subsidiary regularly sells merchandise to Parent. In 2015, inter-company sales amounted to $123,960, with $27,558 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $40,300.

In 2016, inter-company sales amounted to $123,960 with $35,330 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $49,584.

Financial statements of Parent and Subsidiary for the year ended December 31, 2016 are presented below.

Parent

Subsidiary

Sales revenue

$ 9,864,000

$3,718,800

Cost of goods sold

(6,904,800

)

(2,231,280

)

Gross profit

2,959,200

1,487,520

Operating expenses

(1,874,160

)

(966,888

)

Equity income

491,860

_________

Net Income

$ 1,576,900

$ 520,632

Retained Earnings, 1/1/16

$ 4,955,674

$1,921,380

Net income

1,576,900

520,632

Dividends

(301,758

)

(67,682

)

Retained Earnings, 12/31/16

$ 6,230,816

$2,374,330

Cash and receivables

$ 2,557,242

$2,064,790

Inventory

1,913,616

1,108,202

Equity investment

3,043,826

Property, plant & equipment (Net)

9,205,085

2,050,300

Total Assets

$16,719,769

$5,223,292

Accounts payable

$ 1,341,706

$ 443,876

Accrued liabilities

1,513,051

607,660

Notes payable

4,200,000

1,239,600

Common stock

1,612,764

125,280

Additional paid-in capital

1,821,432

432,546

Retained Earnings, 12/31/16

6,230,816

2,374,330

Total Liabilities and Equities

$16,719,769

$5,223,292

Required:

a.

Prepare a schedule showing the computation of Equity Income on Parent's books for 2016.

b.

Prepare a schedule showing the computation of Equity Investment on Parent's books at December 31, 2016.

c.

Prepare the consolidation worksheet with entries for 2016.

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