Part II Intercompany Transactions Facts: Sub Co is a 90% owned subsidiary of Parent Co, acquired for $94,500 cash on July 1, 2018, when Sub's net assets consisted of $100,000 capital stock and $5,000 retained earnings. The cost of Parent Co's 90% interest in Sun was equal to book value and fair value of the interest acquired. Parent Co sells inventory items to Sub Co on a regular basis, and the intercompany transaction data for 2021 are as follows: Sales to Sub Co in 2021 (cost $15,000), selling price Unrealized profit in Sub Co's inventory at December 31, 2020 (inventory was sold during 2021) Unrealized profit in Sub Co's inventory at December 31, 2021 Sub Co's accounts payable to Parent Co at December 31, 2021 $20,000 2,000 2,500 10,000 At December 31, 2020, Parent Co's investment in subsidiary account had a balance of $128,500. This balance consisted of Parent Co's 90% equity in Sub's $145,000 net assets on that date less $2,000 unrealized profit in Sub's December 31, 2020 inventory. During 2021 Parent Co made the following entries in its records for its investment in Sub: Cash DR CR 9,000 Investment in subsidiary 9,000 To record dividends from Sub Co ($10,000 * 90%) Investment in subsidiary 26,500 Income from subsidiary 26,500 $27,000 2,000 (2,500) $26,500 To record income from Sub Co for 2021 as follows: Equity in Sub Co's net income ($30,000 * 90%) Add: 2020 inventory profit recognized in 2021 Less: 2021 inventory profit deferred at year-end Total The 2020 intercompany sales that led to the unrealized inventory profits were recognize in 2021 and the full amount of the unrealized inventory profit originating in 2021 is deferred at December 31, 2021. Parent Co's investment in Sub Co increased from $128,500 at January 1, 2021 to $146,000 at December 31, 2021, the entire change consisting of $26,500 income less $9,000 dividends for the year. Required: Using the Excel file "Case 1 - Advanced accounting topics" and the worksheet "Intercompany," prepare and show the required adjusting and eliminating journal entries (in journal entry form) and complete the worksheet at December 31, 2021, posting the journal entries to the worksheet and completing the Consolidated column with the totals. 2 Parent Co. A 1 Intercompany Transactions 2 B C D E F G H I ] K Separate Company Adjustments and B Financial Statements Parent Eliminations Subsidiary DR CR Consolidated 5 Income Statement 5 Net sales 1,000,000 300,000 7 Income from subsidiary 26,500 0 B Total revenue 1,026,500 300,000 Expenses 0 Cost of goods sold 1 Other expenses 550,000 200,000 350,000 70,000 900,000 270,000 126,500 30,000 2 Total expenses 3 Consolidated net income 4 Noncontrolling interest share 5 Controlling share of net income 126,500 30,000 6 Statement of Retained Earnings 7 Beginning retained earnings 194,000 45,000 8 Net income 126,500 30,000 9 Dividends -50,000 -10,000 0 Ending retained earnings 270,500 65,000 1 Balance Sheet 2 Assets 3 Cash 30,000 5,000 4 Accounts receivable, net 70,000 20,000 5 Inventory 90,000 45,000 6 Other current assets 64,000 10,000 7 Total current assets 254,000 80,000 8 Plant and equipment, net 800,000 120,000 9 Investment in subsidiary 146,000 0 0 Total assets 1,200,000 200,000 1 Liabilities & Stockholders' Equity 2 Accounts payable 80,000 15,000 3 Other liabilities 49,500 20,000 4 Total current liabilities 129,500 35,000 5 Common stock 800,000 100,000 6 Retained earnings 270,500 65,000 7 Noncontrolling interest 0 0 8 Total stockholders' equity 1,070,500 165,000 9 Total liab & stockholders' eq 1,200,000 200,000 0