Please determine consolidated net income and consolidated retained earnings

Prepare consolidation spreadsheet for continuous sale of inventory-Cost method A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $800,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets: Original Amount Original Useful Life Property, plant & equipment 270,000 10 years Customer list 170,000 8 years Royalty agreement 150,000 8 years Goodwill 120,000 Indefinite The Goodwill asset has been tested annually for impairment, and has not been found to be impaired. Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016: Inventory Gross Profit Remaining in Receivable Sales Unsold Inventory (Payable) 2016 $44,000 $12,000 $32,000 2015 $64,000 $14,500 $19,000 The inventory not remaining at the end of a given year is sold to unaffiliated entities outside of the consolidated group during the next year. The parent uses the cost method of pre-consolidation Equity Investment bookkeeping. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $4,350,000 $800,000 Assets Cost of goods sold (3,050,000) (480,000) Cash $650,000 $320,000 Gross profit 1,300,000 320,000 Accounts receivable 560,000 180,000 Income (loss) from subsidiary 15,000 Inventory 250,000 Operating expenses (830,000) (200,000) Equity investment 1,010,000 $485,000 $120,000 Property, plant & equipment 420,000 Statement of retained earnings $7,070,000 $1,170,000 BOY retained earnings $2,000,000 $475,000 Liabilities and stockholders' equity 120,000 Accounts payable $100,000 850,000 Net income 4,000,000 Net income 485,000 $350,000 The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $4,350,000 $800,000 Assets Cost of goods sold (3,050,000) (480,000) Cash $650,000 $320,000 Gross profit 1,300,000 320,000 Accounts receivable 560,000 180,000 Income (loss) from subsidiary 15,000 Inventory 850,000 250,000 Operating expenses (830,000) (200,000) Equity investment 1,010,000 Net Income $495,000 $120,000 Property, plant & equipment 4,000,000 420.000 Statement of retained earnings $7,070,000 $1,170,000 BOY retained earnings $2,000,000 $475,000 Liabilities and stockholders' equity Net income 485.000 120,000 Accounts payable $350,000 $100,000 Dividends (125,000) (15,000) Other current liabilities 400,000 125,000 Ending retained earnings $2,360,000 $580,000 Long-term liabilities 2,500,000 260,000 Common stock 700,000 50,000 APIC 760,000 55,000 Retained earnings 2,360,000 580,000 $7,070,000 $1,170,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE), net $ 27,000 $ 27,000 $ 27,000 $ 27,000 Customer List 21,250 21,250 21,250 21,250 Royalty Agreement 18,750 18.750 18,750 18,750 Goodwill 0 0 Net amortization $ 67,000 $ 67,000 $ 67,000 $ 67,000 O Jan. 1 100% Unamortized AAP - Dr (Cr) 2013 Property, plant and equipment (PPE) net $ 270,000 $ 2013 243,000 $ December 31, 2014 2015 216,000S 189,000 $ 2016 162.000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE), net s 27,000 $ 27,000 $ 27,000 $ 27,000 Customer List 21,250 21,250 21,250 21,250 Royalty Agreement 18,750 18,750 18,750 18,750 Goodwill 0 0 Net amortization $ 67,000 $ 67,000 $ 67,000 $ 67,000 100% Unamortized AAP - Dr (Cr) Property, plant and equipment (PPE), net $ Customer List Royalty Agreement Goodwill Net unamortized $ Jan. 1 2013 270,000 $ 170,000 150,000 120,000 710,000 $ 2013 243,000 $ 148,750 131,250 120,000 643,000 $ December 31, 2014 2015 216,000 $ 189,000 $ 127,500 106,250 112,500 93,750 120,000 120,000 576,000 $ 509,000 S 2016 162,000 85,000 75,000 120,000 442,000 b. Compute the amount of the beginning of year [AD]] adjustment necessary for the consolidation of the financial statements for the year ended December 31, 2016. Do not use negative signs with your answers below. Change in RE(S) thru BOY $ 280,000 Cumulative AAP amort thru BOY 201,000 BOY Upstream IIP 64.500 14,500 ADJ Amount $ C. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation Journal Description Debit Credit [AD]] Equity investment 64,500 BOY Retained earnings-Parent 64,500 . 0 . 0 0 0 0 0 0 C. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation Journal Description Debit Credit [ADEquity investment 64,500 BOY Retained earnings-Parent 64,500 [C] Income (loss) from subsidiary + 15,000 Dividends 15,000 [E] BOY Common stock (Subsidiary) 50,000 0 BOY APIC (Subsidiary) 55,000 0 BOY Retained earnings-Subsidiary 475,000 Equity investment 580,000 [A] PPE, net 189,000 Customer list 106,250 0 Royalty Agreement 93,750 Goodwill 120,000 Equity investment 509,000 [D] Operating expenses 67,000 PPE, net 27,000 Customer List 21,250 Royalty Agreement 18,750 [lcogs) Equity investment 14,500 Cost of goods sold 0 14,500 To recognize prior year profit on intercompany sales. [Isales] Sales 44,000 Cost of goods sold 44,000 [lcogs] Cost of goods sold 12,000 Inventory 0 12,000 To defer current period profit on intercompany sales. [lpay] Accounts payable 32,000 Accounts receivable 32,000 0 0 . 0 0 0 . 0 > 0 0 > 0 0 . > 07 Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Consolidation Worksheet Income statement Parent Subsidiary Debit Credit Consolidated Sales $4,350,000 $800,000 (sales] 44,000 $ 5,106,000 Cost of goods sold (3,050,000) (480,000) icogs 12,000 14,500 [icogs) 3,483,500) 44,000 (sales] Gross profit 1,300,000 320,000 1,622,500 Equity income 15,000 [C] 15,000 Operating expenses (830,000) (200,000) [D] 67,000 (1,097,000) Net income $485,000 $120,000 $ 525,500 Statement of retained earnings BOY retained eamings $2,000,000 $475,000 475,000 64,500 [AD]] $ 2,064,500 Net income 495,000 120,000 485,000 X Dividends (125,000) (15,000) 15,000 (C) (125,000) Ending retained earnings $2,360,000 $580.000 $ Balance sheet Assets Cash $650,000 $320,000 $ 970,000 Accounts receivable 560,000 180,000 32,000 (payi 700,000 Inventory 850,000 250,000 12,000 [lcogs) 1,088,000 Equity investment 1,010,000 IADI 64,500 580,000[E] [lcogs 14,500 509,000 [A] PPE, net 4,000,000 420,000 [A] 199,000 27,000 (D) 4,582,000 Customer List IA 106,250 21,250[D 85,000 Royalty Agreement [A] 93.750 18,750 DI 75,000 Goodwill [A] 120,000 120,000 $7,070,000 $1,170,000 $ 7,628,000 Liabilities and equity Accounts payable $350,000 $100,000 [lpayl 32,000 $ 418,000 Other currentliabilities 400,000 125,000 525,000 Long-term liabilities 2.500.000 260,000 2,760,000 $120,000 5 525,500 LE] 475,000 64,500 [AD] $475,000 120,000 115,000) 5580,000 $ 2,064,500 485,000 x (125,000) $ OX 15,000 (C) Net income S485,000 Statement of retained earnings BOY retained earnings $2,000,000 Net income 495,000 Dividends (125,000) Ending retained earnings $2,360,000 Balance sheet Assets Cash $650,000 Accounts receivable 560,000 Inventory 850,000 Equity Investment 1,010,000 $ $320,000 180,000 250,000 970,000 708,000 1,088,000 0 4,000,000 32,000 (pay] 12,000 [icogs 500,000 509,000 (A) 27,000 D 21,250[D 18,750 D 420,000 [ADI [lcogs IA [A] [A] [A PPE, net Customer List Royalty Agreement Goodwill 64,500 14,500 189,000 106,250 93,750 120,000 4,582,000 85,000 75,000 120,000 $ 7,628,000 $7,070,000 $1,170,000 32,000 $ Liabilities and equity Accounts payable Other currentliabilities Long term liabilities Common stock APIC Retained earnings $350,000 $100,000 [lpayl 400,000 125,000 2,500,000 260,000 700,000 50,000 [E] 760,000 55,000 [E] 2,360,000 580,000 $7,070,000 $1,170,000 50,000 55,000 418,000 525,000 2,760,000 700,000 760,000 2,360,000 x OX $ 1,338,000 $ 1,338,000 $