Question
Please don`t just answer it. Show your work with the full breakdown/ Explanation on how you got the answer to these entries especially in part
Please don`t just answer it. Show your work with the full breakdown/ Explanation on how you got the answer to these entries especially in part C. I`m using this problem to study for an exam. I need to know how each entry it recorded.
Parent purchased Subsidiary on January 1, 2011. 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 2012, 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 2013, 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, 2013 are presented below.
| Parent | Subsidiary |
Sales Revenue | $ 9,864,000 | $1,859,400 |
Cost of Goods Sold | (6,904,800) | 1,115,640 |
Gross Profit | 2,959,200 | 743,760 |
Operating Expenses | (1,874,160) | (483,444) |
Equity Income | 231,544 | _ |
Net Income | $ 1,316,584 | $ 260,316 |
|
|
|
Retained Earnings, 1/1/13 | $ 4,955,674 | $ 960,690 |
Net income | 1,316,584 | 260,316 |
Dividends | (301,758) | (33,841) |
Retained Earnings, 12/31/13 | $ 5,970,500 | $1,187,165 |
|
|
|
Cash and receivables | $ 2,557,242 | $1,032,395 |
Inventory | 1,913,616 | 554,101 |
Equity Investment | 1,577,748 |
|
Property, Plant & Equipment (Net) | 9,205,085 | 1,025,150 |
Total Assets | $15,253,691 | $2,611,646 |
|
|
|
Accounts payable | $ 738,825 | $ 221,938 |
Accrued liabilities | 910,170 | 303,830 |
Notes payable | 4,200,000 | 619,800 |
Common stock | 1,612,764 | 62,640 |
Additional paid-in capital | 1,821,432 | 216,273 |
Retained Earnings, 12/31/13 | 5,970,500 | 1,187,165 |
Total Liabilities and Equities | $15,253,691 | $2,611,646 |
Required:
a. Prepare a schedule showing the computation of Equity Income on Parent's books for 2013.
b. Prepare a schedule showing the computation of Equity Investment on Parent's books at December 31, 2013.
c. Prepare the consolidation entries (entries only no need for worksheet, but if you prefer you can do worksheet as well) for 2013.
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