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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 250,000 10 years Customer list 150,000 8 years Royalty agreement 130,000 8 years Goodwill 120,000 Indefinite The Goodwill asset has been tested annually for impairment, and has not be 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: Intercompany Gross Profit Remaining in Receivable Sales Unsold Inventory (Payable) 2016 $42,000 $10,000 $30,000 2015 $62,000 $12,500 $17,000 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.J The nancial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Income statement Sales Cost of goods sold Gross prot Income (loss) from subsidiary Operating expenses Net income Statement of retained earnings BOY retained earnings Net income Dividends Ending retained earnings Parent $4,350,000 (3,050,000) 1,300,000 15,000 (830,000) 485,000 $2,000,000 485,000 (125,000) $2,360,000 Subsidiary $800,000 (480,000) 320,000 (200,000) 120,000 455,000 120,000 (15,000) 560,000 Balance sheet Assets Cash Accounts receivable Inventory Equity investment Property, plant & equipment Liabilities and stockholders' equity Accounts payable Other current liabilities Long-term liabilities Common stock APIC Retained earnings Parent $650,000 560,000 850,000 950,000 4,000,000 $7,010,000 $350,000 400,000 2,500,000 700,000 700,000 2,360,000 7,010,000 Subsidiary 300,000 180,000 250,000 420,000 $1,150,000 $100,000 125,000 260,000 50,000 55,000 560,000 1,150,000 L b. [ADJ] BOY Equity Investment BOY Retained Earnings (P) [C] Income (loss) from subsidiary Dividends [E] BOY Common stock (S) BOY APIC (S) BOY Retained earnings (S) Equity investment [A] PPE Customer list Royalty Agreement Goodwill Equity Investment [D] Depec, & amort. expense PPE Customer List Royalty Agreement [Icogs] Equity Investment Cost of goods sold [Isales] Sales Cost of goods sold [Icogs] Cost of goods sold Inventory [Ipay] Accounts payable Accounts receivable
