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 Customer list Royalty agreement Goodwill 260,000 10 years 160,000 8 years 8 years Indefinite 140,000 120,000 The Goodwill asset has been tested annually for impairment, and has not been 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: Inventory Gross Profit Remaining in Receivable 2016 Sales $43,000 2015 $63,000 Unsold Inventory $11,000 $13,500 (Payable) $31,000 $18,000 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. The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow: Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $4,350,000 Cost of goods sold (3,050,000) $800,000 Assets (480,000) Cash $650,000 $310,000 Gross profit 1,300,000 320,000 Accounts receivable 560,000 180.000 Income (loss) from subsidiary 15,000 Inventory 850,000 250,000 Operating expenses (830,000) (200,000) Equity investment 980,000 Net income $485,000 $120,000 Property, plant & equipment 4,000,000 420,000 Statement of retained earnings $7,040,000 $1,160,000 BOY retained earnings $2,000,000 Net income 485,000 $465,000 Liabilities and stockholders' equity 120,000 Accounts payable $350,000 $100,000 $100,000 Dividends Ending retained earnings (125,000) $2,360,000 $570,000 (15,000) Other current liabilities 400,000 125,000 Long-term liabilities 2,500,000 260,000 Common stock 700.000 50,000 APIC Retained earnings 730,000 55,000 2,360,000 570,000 $7,040,000 $1,160,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 2014 100% AAP Amortization - Dr (Cr) Property, plant and equipment (PPE), net $ 2013 2015 2016 0x s 0 x Customer List 0 x 0 x Royalty Agreement 0x 0 x 0 x 0 x Goodwill 0 0 O Net amortization 0x s 0 x 5 0 x $ 0 x Jan. 1 December 31 100% Unamortized AAP - Dr (Cr) Property, plant and equipment (PPC), net s 2013 2013 2014 2015 2016 0 x 5 0 x $ 0x S 0x s 0 x Customer List 0 x Royalty Agreement 0 x 0 x 0 x 0 x 0 x Goodwill 0 x 0 x 0 x Net unamortized 0x S 0x S 0x s 0 x $ 0 x b. Compute the amount of the beginning of year [AD]] adjustment necessary for the consolidation of the financial statements for the year ended December 31, 2016. Do not use negative signs with your answers below. Change in RE(S) thru BOY 0 x Cumulative AAP amort thru BOY 0 x BOY Upstream IIP ADJ Amount 0x