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 $1,2019,$ for $$1,000,000.$ On this date, the balances of the subsidiary$$s stockholders$$ equity accounts were Common Stock, $$62,500,$ Additional Paid$-$in Capital, $$68,750,$ and Retained Earnings, $$243,750.$ On the acquisition date, the excess was assigned to the following AAP assets:

Property, plant & equipment $$250,00010$ years

Customer list $125,0008$ years

Royalty agreement $100,0008$ years

Goodwill $150,000$ Indefinite

$$625,000$

The Goodwill asset has been tested annually for impairment, and has not been found to be impaired.

Assume 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 $2021$ and $2022$:

Inventory

Sales Gross Profit Remaining in

Unsold Inventory Receivable

$($Payable$)$

$2022$ $$50,000$ $$10,000$ $$35,000$

$2021$ $$75,000$ $$13,125$ $$18,750$

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. The financial statements of the parent and its subsidiary for the year ended December $31,2022,$ follow:

Parent Subsidiary Parent Subsidiary

Income statement Balance sheet

Sales $$5,437,500$ $$1,000,000$ Assets

Cost of goods sold $(3,812,500)(600,000)$ Cash $$812,500$ $$312,500$

Gross profit $1,625,000400,000$ Accounts receivable $700,000225,000$

Operating expenses $(1,037,500)(250,000)$ Inventory $1,062,500312,500$

Income $($loss$)$ from subsidiary $18,750-$ Equity investment $1,000,000-$

Net income $$606,250$ $$150,000$ Property, plant & equipment, net $5,000,000525,000$

Statement of retained earnings $$8,575,000$ $$1,375,000$

BOY retained earnings $$2,500,000$ $$506,250$ Liabilities and stockholders' equity

Net income $606,250150,000$ Accounts payable $$437,500$ $$125,000$

Dividends $(156,250)(18,750)$ Other current liabilities $500,000156,250$

Ending retained earnings $$2,950,000$ $$637,500$ Long$-$term liabilities $3,125,000325,000$

Common stock $875,00062,500$

APIC $687,50068,750$

Retained earnings $2,950,000637,500$

$$8,575,000$ $$1,375,000$

a$.$ Disaggregate and document the activity for the $100\%$ Acquisition Accounting Premium $($AAP$)$ through December $31,2022.$

b$.$ Compute the amount of the beginning of year $[$ADJ$]$ adjustment necessary for the consolidation

c$.$ Complete the consolidating entries according to the C$-$E$-$A$-$D$-$I sequence and complete the consolidation worksheet.

Consolidated column for Cost of goods sold, Operating expenses and Dividends.