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 250,000 150,000 Royalty agreement 130,000 120,000 Indefinite 10 years Customer list 8 years 8 years Goodwill 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 Sales Unsold Inventory (Payable) $42.000 $10,000 $30,000 $62,000 $12,500 $17.000 2016 2015 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 $800,000 Assets Cost of goods sold 13,050,000) (480,000) Cash $650,000 $300,000 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 950,000 Net income $485,000 $120,000 Property, plant & equipment 4,000,000 420,000 Statement of retained earnings $ $7,010,000 $1,150,000 BOY retained eamings $2,000,000 $455,000 Liabilities and stockholders' equity Net income 485,000 120,000 Accounts payable $350,000 $100,000 $ Dividends (125,000) 115,000) Other current liabilities 400,000 125,000 Ending retained earnings $2.360,000 $560,000 Long term liabilities 2,500,000 260,000 Common stock 700,000 50,000 APIC 700,000 55,000 Retained earnings 2,360,000 560,000 $7,010,000 $1,150,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE) net Customer List Royalty Agreement Goodwill S Net amortization Jan. 1 2013 December 31, 2014 2015 2013 2016 S 1 100% Unamortized AAP. Dr (Cr) Property, plant and equipment (PPE), net $ Customer List Royalty Agreement Goodwill Net unamortized S $ S b. Compute the amount of the beginning of year (ADJ] 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 Cumulative AAP amort thru BOY BOY Upstream IIP ADJ Amount $ c. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation Journal Description Debit Credit [AD] [C] [E] BOY Common stock (Subsidiary) BOY APIC (Subsidiary) [A] PPE, net Customer list Royalty Agreement [D] Customer List Royalty Agreement [lcogs] To recognize prior year profit on intercompany sales. [lsales) [lcogs] - To defer current period profit on intercompany sales. [lpay] 120,000 Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Consolidation Worksheet Income statement Parent Subsidiary Debit Credit Consolidated Sales $4,350,000 $800,000 (sales) Cost of goods sold (3,050,000) (480,000) [lcogs] [lcogs] [Isales] Gross profit 1,300,000 320,000 Equity income 15,000 [C] Operating expenses (830,000) (200,000) [D] Net income $485,000 $120,000 $ Statement of retained earnings BOY retained earnings $2,000,000 $455,000 [E] [AD]] $ Net income 485,000 Dividends (125,000) (15,000) [C] Ending retained earnings $2,360,000 $560,000 $ Balance sheet Assets Cash $650,000 $300,000 $ Accounts receivable 560,000 180,000 [lpay] Inventory 850,000 250,000 [lcogs] Equity investment 950,000 [AD] [E] [lcogs] [A] PPE, net 4,000,000 420,000 [A] [D] Customer List [A] [D] Royalty Agreement [A] [D] Goodwill [A] $7,010,000 $1,150,000 $ Liabilities and equity Accounts payable $350,000 $100,000 (pay] $ Other currentliabilities 400,000 125,000 Long-term liabilities 2,500,000 260,000 Common stock 700,000 50,000 [E] APIC 700,000 55,000 [E] Retained earnings 2,360,000 560,000 $7,010,000 $1,150,000 $ 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 250,000 150,000 Royalty agreement 130,000 120,000 Indefinite 10 years Customer list 8 years 8 years Goodwill 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 Sales Unsold Inventory (Payable) $42.000 $10,000 $30,000 $62,000 $12,500 $17.000 2016 2015 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 $800,000 Assets Cost of goods sold 13,050,000) (480,000) Cash $650,000 $300,000 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 950,000 Net income $485,000 $120,000 Property, plant & equipment 4,000,000 420,000 Statement of retained earnings $ $7,010,000 $1,150,000 BOY retained eamings $2,000,000 $455,000 Liabilities and stockholders' equity Net income 485,000 120,000 Accounts payable $350,000 $100,000 $ Dividends (125,000) 115,000) Other current liabilities 400,000 125,000 Ending retained earnings $2.360,000 $560,000 Long term liabilities 2,500,000 260,000 Common stock 700,000 50,000 APIC 700,000 55,000 Retained earnings 2,360,000 560,000 $7,010,000 $1,150,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE) net Customer List Royalty Agreement Goodwill S Net amortization Jan. 1 2013 December 31, 2014 2015 2013 2016 S 1 100% Unamortized AAP. Dr (Cr) Property, plant and equipment (PPE), net $ Customer List Royalty Agreement Goodwill Net unamortized S $ S b. Compute the amount of the beginning of year (ADJ] 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 Cumulative AAP amort thru BOY BOY Upstream IIP ADJ Amount $ c. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet. Consolidation Journal Description Debit Credit [AD] [C] [E] BOY Common stock (Subsidiary) BOY APIC (Subsidiary) [A] PPE, net Customer list Royalty Agreement [D] Customer List Royalty Agreement [lcogs] To recognize prior year profit on intercompany sales. [lsales) [lcogs] - To defer current period profit on intercompany sales. [lpay] 120,000 Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Consolidation Worksheet Income statement Parent Subsidiary Debit Credit Consolidated Sales $4,350,000 $800,000 (sales) Cost of goods sold (3,050,000) (480,000) [lcogs] [lcogs] [Isales] Gross profit 1,300,000 320,000 Equity income 15,000 [C] Operating expenses (830,000) (200,000) [D] Net income $485,000 $120,000 $ Statement of retained earnings BOY retained earnings $2,000,000 $455,000 [E] [AD]] $ Net income 485,000 Dividends (125,000) (15,000) [C] Ending retained earnings $2,360,000 $560,000 $ Balance sheet Assets Cash $650,000 $300,000 $ Accounts receivable 560,000 180,000 [lpay] Inventory 850,000 250,000 [lcogs] Equity investment 950,000 [AD] [E] [lcogs] [A] PPE, net 4,000,000 420,000 [A] [D] Customer List [A] [D] Royalty Agreement [A] [D] Goodwill [A] $7,010,000 $1,150,000 $ Liabilities and equity Accounts payable $350,000 $100,000 (pay] $ Other currentliabilities 400,000 125,000 Long-term liabilities 2,500,000 260,000 Common stock 700,000 50,000 [E] APIC 700,000 55,000 [E] Retained earnings 2,360,000 560,000 $7,010,000 $1,150,000 $