Question
Prepare consolidation spreadsheet for intercompany sale of equipment - Equity method Assume a parent company acquired its subsidiary on January 1, 2015, at a purchase
Prepare consolidation spreadsheet for intercompany sale of equipment - Equity method Assume a parent company acquired its subsidiary on January 1, 2015, at a purchase price that was $222,000 in excess of the book value of the subsidiarys Stockholders Equity on the acquisition date. Of that excess, $132,000 was assigned to a Customer List that is being amortized over a 10-year period. The remaining $90,000 was assigned to Goodwill.
In January of 2018, the wholly owned subsidiary sold Equipment to the parent for a cash price of $72,000. The subsidiary had acquired the equipment at a cost of $84,000 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, 2019 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, 2019.
c. Show the computation to yield the $74,400 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2019.
Note: Use a negative sign with an answer to indicate a reduction in the computation.
d. Compute the Equity Investment balance of $540,000 on December 31, 2019.
Note: Use a negative sign with an answer to indicate a reduction in the computation.
e. Prepare the consolidation entries for the year ended December 31, 2019.
f. Prepare the consolidation spreadsheet for the year ended December 31, 2019.
Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.
Every word from the question is posted. Not sure how it isn't clear. Please explain what you are referring to. Thanks.
Debit Credit 120,000 X > 52,500 x 140,000 x 37,500 x 0 Journal Entries Description Subsidiary: Cash Accumulated depreciation Gain on sale of equipment Property, plant & equipment Parent: Property, plant & equipment Cash [lgain] Gain on sale of equipment Property, plant & equipment Accumulated depreciation [idepr] Accumulated depreciation Depreciation expense 125,000 x 125,000 x 0 37,500 x 15,000 X 0 0 > > 0 52,500 x 6,833 x 0 0 68,333 x 141,000 X (20,500) X Net income of subsidiary AAP Depreciation Deferred gain on intercompany sale Income (loss) from subsidiary 6,833 X 127,333 x Common stock APIC EOY Retained earnings EOY Unamortized AAP Gain on intercompany sale Equity investment 124000 x 155,000 X 225,000 x 219,500 x (30,667) X 800,166 x Debit Credit 0X 0 0 OX > > OX 0 0X 0 OX 0 0 OX Consolidation Worksheet Description [C] Income (loss) from subsidiary Dividends Equity investment [E] Common stock APIC Retained earnings Equity investment [A] Customer list Goodwill Equity investment [D] Operating expenses Customer list [lgain] Equity Investment Property, plant & equipment Accumulated depreciation [idepr) Accumulated depreciation Depreciation expense OX 0 OX 0 0 OX Ox > 0 OX OX 0 > OX 0 > 0 0 X 0 > > 0 0 X Elimination Entries Dr Cr Consolidated $ Ox Parent Sub $4,800,000 $720,000 (3,480,000) (420,000) 1,320,000 300,000 74,400 (1,094,400) (216,000) $300,000 $84,000 $ 0x 0 [C] [D] OX 0 x [ldepr] 0 x $ Ox [E] OX $ OX Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Statement of retained earnings: BOY retained earnings Net income Dividends EOY retained earnings Balance sheet: Assets Cash Accounts receivable Inventory PPE, net OX $2,268,000 $168,000 300,000 84,000 (168,000) (12,000) $2,400,000 $240,000 0 x [C] OX $ 0 x $ OX $330,000 420,000 780,000 3,030,000 0 x [lgain] OX $192,000 258,000 330,000 618,000 [lgain] [idepr] [A] [A] [lgain] 0X 0X 0X [D] OX Customer List Goodwill Equity investment 540,000 0 0X [C] 0X [E] 0 X [A] $5,100,000 $1,398,000 $Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started