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Prepare consolidation spreadsheet for intercompany sale of land - Equity method Assume that a parent company acquired its subsidiary on January 1, 2011, at a purchase price that was $315,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $215,000 was assigned to an unrecorded Patent owned by the subsidiary that is being amortized over a 10-year period. The [A] Patent asset has been amortized as part of the parent's equity method accounting. The remaining $100,000 was assigned to Goodwill. In 2012, the wholly owned subsidiary sold Land to the parent for $110,000. The Land was reported on the subsidiary's balance sheet for $70,000 on the date of sale. The parent uses the equity method to account for its Equity Investment.

Financial statements of the parent and its subsidiary for the year ended December 31, 2013 are presented in d. below:

a. Show the computation to yield the $34,000 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2013.

Note: Use a negative sign with an answer to indicate a reduction in the computation.

Net income of subsidiary	Answer
	Answer
	Answer

b. Show the computation to yield the $509,175 Equity Investment account balance reported by the parent on December 31, 2013.

Note: Use a negative sign with an answer to indicate a reduction in the computation.

Common stock	Answer
APIC	Answer
EOY Retained earnings	Answer
EOY Unamortized AAP	Answer
Gain on intercompany sale	Answer
Equity investment	Answer

c. Prepare the consolidation entries for the year ended December 31, 2013.

Consolidation Worksheet
	Description	Debit	Credit
[C]		Answer	Answer
	Dividends	Answer	Answer
		Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
		Answer	Answer
		Answer	Answer
[A]	Patent	Answer	Answer
		Answer	Answer
		Answer	Answer
[D]		Answer	Answer
		Answer	Answer
[Igain]		Answer	Answer
		Answer	Answer

d. Prepare the consolidation spreadsheet for the year ended December 31, 2013.

Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.

				Elimination Entries
Income statement:	Parent	Sub		Dr	Cr		Consolidated
Sales	$3,000,000	$378,000					Answer
Cost of goods sold	(2,100,000)	(225,000)					Answer
Gross profit	900,000	153,000					Answer
Income (loss) from subsidiary	34,000		[C]	Answer			Answer
Operating expenses	(570,000)	(97,500)	[D]	Answer			Answer
Net income	$364,000	$55,500					Answer
Statement of retained earnings:
BOY retained earnings	$1,477,200	$193,750	[E]	Answer			Answer
Net income	364,000	55,500					Answer
Dividends	(84,875)	(6,825)			Answer	[C]	Answer
EOY retained earnings	$1,756,325	$242,425					Answer
Balance sheet:
Assets
Cash	$341,566	$124,211					Answer
Accounts receivable	384,000	87,000					Answer
Inventory	582,000	111,750					Answer
PPE, net	2,799,600	206,750			Answer	[Igain]	Answer
Patent			[A]	Answer	Answer	[D]	Answer
Goodwill			[A]	Answer			Answer
Equity investment	509,175		[Igain]	Answer	Answer	[C]	Answer
					Answer	[E]
					Answer	[A]
	$4,616,341	$529,711					Answer
Liabilities and stockholders' equity
Accounts payable	$224,700	$44,760					Answer
Other currentliabilities	276,816	61,276					Answer
Long-term liabilities	1,500,000	125,000					Answer
Common stock	490,500	25,000	[E]	Answer			Answer
APIC	368,000	31,250	[E]	Answer			Answer
Retained earnings	1,756,325	242,425					Answer
	$4,616,341	$529,711		Answer	Answer		Answer