Question
Prepare consolidation entries for the upstream sale of the equipment. The parent company acquired 75% of the subsidiary on January 1, 2011. On the acquisition
Prepare consolidation entries for the upstream sale of the equipment.
The parent company acquired 75% of the subsidiary on January 1, 2011. On the acquisition date, the fair value of the subsidiary assets exceeded book value by $350,000. All of that excess was allocated to a Royalty Agreement (there is no Goodwill). The Royalty Agreement has a 7-year remaining useful life on the acquisition date, with no salvage value and straight line amortization. In January, 2014 the subsidiary sold equipment to the parent for a cash price of $250,000. The subsidiary acquired the equipment at a cost of $480,000. Using a 10 year life, with no salvage value, the equipment had been depreciated for 6 full years prior to the date of sale. The parent will depreciate the equipment purchased over the remaining 4 years. The financial statements provided are for the year ended December 31, 2016.
Parent | Subsidiary | |
Income Statement | ||
Sales | 3,400,000 | 900,000 |
Cost of Goods Sold | (2,400,000) | (500,000) |
Gross Profit | 1,000,000 | 400,000 |
Income (loss) from subsidiary | 85,875 | |
Operating Expenses | (522,000) | (250,000) |
Net Income | 563,875 | 150,000 |
Consolidated NI attrib to NCI | ||
Consolidated NI attrib to CI | ||
Statement of Ret Earnings: | ||
Beg. Ret. Earn. | 1,799,750 | 200,000 |
Consolidated NI attrib to CI | 563,875 | 150,000 |
Dividends Declared | (100,000) | (30,000) |
Ending Retained Earnings | 2,263,625 | 320,000 |
Balance Sheet | ||
Cash | 619,500 | 250,000 |
Accounts receivable | 530,000 | 420,000 |
Inventories | 900,000 | 550,000 |
Equity investment | 454,125 | |
PPE, net | 3,500,000 | 1,000,000 |
Royalty agreement | ||
Total Assets | 6,003,625 | 2,220,000 |
Accounts Payable | 340,000 | 250,000 |
Other current liabilities | 400,000 | 300,000 |
Long-term liabilities | 1,500,000 | 1,100,000 |
Common Stock | 200,000 | 100,000 |
APIC | 1,300,000 | 150,000 |
Retained Earnings | 2,263,625 | 320,000 |
Noncontrolling Interest | ||
Total Liabilities and Equity | 6,003,625 | 2,220,000 |
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