Prepare consolidation spreadsheet for intercompany sale of equipment - Equity method Assume a parent company acquired its subsidiary on January 1, 2009, at a purchase price that was $320,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $220,000 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 2012, the wholly owned subsidiary sold Equipment to the parent for a cash price of $116,500. 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, 2013 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 parent's 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. Note: Round answers to the nearest whole number. Journal Entries Description Debit Credit Subsidiary: Cash 0 0 Accumulated depreciation 0 0 Gain on sale of equipment Property, plant & equipment 0 0 0 0 Parent: Property, plant & equipment Cash 0 0 0 0 [Igain] Gain on sale of equipment 0 0 Property, plant & equipment 0 0 [Idepr] Accumulated depreciation Accumulated depreciation 0 0 0 0 Depreciation Expense 0 0 b. Compute the remaining portion of the deferred gain on January 1, 2013. Round your answer to nearest whole number. $ 0 c. Show the computation to yield the $127,417 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2013. Note: Use a negative sign with an answer to indicate a reduction in the computation. Net income of subsidiary AAP Depreciation 0 0 Deferred gain on intercompany sale 0 Income (loss) from subsidiary 0 d. Compute the Equity Investment balance of $816,334 on December 31, 2013. Note: Use a negative sign with an answer to indicate a reduction in the computation. Common stock APIC EOY Retained earnings 0 0 0 EOY Unamortized AAP 0 Gain on intercompany sale 0 Equity investment 0 e. Prepare the consolidation entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit [C] Income (loss) from subsidiary 0 0 Dividends Equity investment [E] Common stock APIC Retained earnings Equity investment [A] Customer list 0 0 = 0 0 0 0 0 0 0 0 0 0 0 0 Goodwill 0 0 Equity investment 0 0 [D] Operating expenses 0 0 Customer list 0 0 [Igain] Equity Investment 0 0 Property, plant & equipment 0 0 Accumulated depreciation = 0 0 [Idepr] Accumulated depreciation 0 0 Deferred gain on intercompany sale 0 0 f. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Statement of retained earnings: Parent $10,000,000 $1,004,000 (7,200,000) (600,000) Sub Elimination Entries Dr Cr Consolidated $ 0 2,800,000 404,000 $ 0 127,417 [C] 0 0 (1,500,000) (260,000) [D] $1,427,417 $144,000 0 0 [Idepr] 0 $ 0 BOY retained earnings Net income $5,814,300 $225,000 [E] 0 1,427,417 144,000 Dividends (285,200) (20,000) EOY retained earnings $6,956,517 $349,000 Balance sheet: Assets $ 0 0 0 [C] 0 $ 0 Cash $1,058,100 $326,000 0 Accounts receivable 1,750,000 430,000 0 Inventory 2,600,000 550,000 0 PPE, net 10,060,000 1,030,000 [Igain] 0 0 [Igain] 0 [Idepr] 0 Customer List [A] 0 0 [D] 0 Goodwill [A] 0 0 Equity investment 816,334 [Igain] 0 0 [C] 0 0 [E] 0 [A] $16,284,434 $2,336,000 $ 0 Liabilities and stockholders' equity Accounts payable $1,010,000 $178,000 Other currentliabilities 1,190,000 230,000 Long-term liabilities Common stock APIC 2,500,000 1,300,000 553,000 124,000 4,074,917 155,000 [E] 0 [E] 0 Retained earnings 6,956,517 349,000 $16,284,434 $2,336,000 $ 0 0 0 0 0 0 $ 0 $ 0 $ 0