Prepare consolidation spreadsheet for intercompany sale of equipment - Equity method Assume that a parent company acquired its subsidiary on January 1, 2012, at a purchase price that was $300,000 in excess of the book value of the subsidiarys Stockholders Equity on the acquisition date. Of that excess, $200,000 was assigned to a Customer List that is being amortized over a 10-year period. The remaining $100,000 was assigned to Goodwill.

In January of 2015, the wholly owned subsidiary sold Equipment to the parent for a cash price of $120,000. The subsidiary had acquired the equipment at a cost of $140,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The subsidiary had depreciated the equipment for 4 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 6-year useful life.

Financial statements of the parent and its subsidiary for the year ended December 31, 2016 follow in part f. below. The parent uses the equity method to account for its Equity Investment. The Customer List was amortized as part of the parents equity method accounting.

a. Prepare the journal entry that the subsidiary made to record the sale of the equipment to the parent, the journal entry that the parent made to record the purchase, and the [I] entries for the year of sale.

b. Compute the remaining portion of the deferred gain on January 1, 2016. Round to nearest whole number. Use negative signs with answers when appropriate.

c. Show the computation to yield the $126,000 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2016. Hint: Use negative signs with answers when appropriate.

d. Compute the Equity Investment balance of $800,000 on December 31, 2016. Hint: Use negative signs with answers when appropriate.

e. Prepare the consolidation entries for the year ended December 31, 2016.

f. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Hint: Use negative signs with answers when appropriate.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$10,000,000	$1,000,000
Cost of goods sold	(7,200,000)	(600,000)
Gross profit	2,800,000	400,000
Income (loss) from subsidiary	126,000
Operating expenses	(1,500,000)	(260,000)
Net income	$1,426,000	$140,000
Statement of retained earnings:
BOY retained earnings	$5,814,300	$225,000
Net income	1,426,000	140,000
Dividends	(285,200)	(20,000)
EOY retained earnings	$6,955,100	$345,000
Balance sheet:
Assets
Cash	$1,058,100	$322,000
Accounts receivable	1,750,000	430,000
Inventory	2,600,000	550,000
PPE, net	10,060,000	1,030,000
Customer List
Goodwill
Equity investment	800,000
	$16,268,100	$2,332,000
Liabilities and stockholders equity
Accounts payable	$1,010,000	$178,000
Other current liabilities	1,190,000	230,000
Long-term liabilities	2,500,000	1,300,000
Common stock	553,000	124,000
APIC	4,060,000	155,000
Retained earnings	6,955,100	345,000
	$16,268,100	$2,332,000