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Prepare consolidation spreadsheet for intercompany sale of equipment-Cost method Assume that a parent company acquired a subsidiary on January 1, 2012 for $892,000. The purchase price was $359,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. On the acquisition date, the subsidiary's stockholders equity was comprised of $390,000 of no-par common stock and $143,000 of retained earnings. The Acquisition Accounting Premium (AAP) was assigned as follows: an increase of $33,000 in accounts receivable that were entirely collected during the year after acquisition, an increase of $65,000 for property, plant and equipment that has 10 years of remaining useful life, $124,000 for an unrecorded patent with an 8-year remaining life and $137,000 for goodwill. All amortizable components of the AAP are amortized using the straight-line method. On January 1, 2014, the parent sold Equipment to the subsidiary for a cash price of $134,700. The parent had acquired the equipment at a cost of $130,800 and depreciated the equipment over its 12-year useful life using the straight-line method (no salvage value). The parent had depreciated the equipment for 2 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10 -year useful life. Following are financial statements of the parent and its subsidiary as of December 31,2016 . The parent uses the cost method of preconsolidation investment bookkeeping. a. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [I] entries for the year of sale. Parent Subsidiary b. Compute the remaining portion of the deferred gain at January 1, 2016. $ c. Prior to preparing consolidated financial statements, compute the amount of equity income the parent would have reported for the year ended December 31, 2016 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping. $ d. Prior to preparing consolidated financial statements, compute the amount of Equity investment the parent would have reported on December 31, 2016 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping. Do not use negative signs with your answers below. f. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Prepare consolidation spreadsheet for intercompany sale of equipment-Cost method Assume that a parent company acquired a subsidiary on January 1, 2012 for $892,000. The purchase price was $359,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. On the acquisition date, the subsidiary's stockholders equity was comprised of $390,000 of no-par common stock and $143,000 of retained earnings. The Acquisition Accounting Premium (AAP) was assigned as follows: an increase of $33,000 in accounts receivable that were entirely collected during the year after acquisition, an increase of $65,000 for property, plant and equipment that has 10 years of remaining useful life, $124,000 for an unrecorded patent with an 8-year remaining life and $137,000 for goodwill. All amortizable components of the AAP are amortized using the straight-line method. On January 1, 2014, the parent sold Equipment to the subsidiary for a cash price of $134,700. The parent had acquired the equipment at a cost of $130,800 and depreciated the equipment over its 12-year useful life using the straight-line method (no salvage value). The parent had depreciated the equipment for 2 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10 -year useful life. Following are financial statements of the parent and its subsidiary as of December 31,2016 . The parent uses the cost method of preconsolidation investment bookkeeping. a. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [I] entries for the year of sale. Parent Subsidiary b. Compute the remaining portion of the deferred gain at January 1, 2016. $ c. Prior to preparing consolidated financial statements, compute the amount of equity income the parent would have reported for the year ended December 31, 2016 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping. $ d. Prior to preparing consolidated financial statements, compute the amount of Equity investment the parent would have reported on December 31, 2016 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping. Do not use negative signs with your answers below. f. Prepare the consolidation spreadsheet for the year ended December 31, 2016
