Prepare consolidation spreadsheet for intercompany sale of equipment - Equity method

Assume that aparent company acquired its subsidiary on January 1, 2009, at a purchase price that was $315,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $215,000 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 ownedsubsidiary sold Equipment to the parent for a cash price of $118,500. 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 theequity 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.

Journal Entries Description Debit Credit Subsidiary: Cash Property, plant & equipment Parent: [ gain] Property, plant & equipment [Idepr]Consolidation Worksheet Description Debit Credit [C] Dividends [E] APIC Retained earnings $ [A] Customer list [D] Operating expenses [gain] Equity Investment [ldepr]Elimination Entries Income statement: Parent Sub cr Consolidated Sales $10,000,000 $1,003,000 Cost of goods sold 7,200,000 (600,000 Gross profit 2,800,000 403,000 Income (loss) from subsidiary 127,250 [C] Operating expenses (1,500,000 (260,000) [D] [Idepr] Net income $1,427,250 $143,000 $ Statement of retained earnings: BOY retained earnings $5,814,300 $225,000 [E] $ Net income 1,427,250 143,000 Dividends 285,200 (20,000) [C] EOY retained earnings $6,956,350 $348,000 Balance sheet: Assets Cash $1,058, 100 $325,000 Accounts receivable 1,750,000 430,000 Inventory 2,600,000 550,000 PPE, net 10,060,000 1,030,000 [lgain] [lgain] [Idepr] Customer List [A] [D] Goodwill [A] Equity investment 811,500 [gain] [E] [A] $16,279,600 $2,335,000 Liabilities and stockholders' equity Accounts payable $1,010,000 $178,000 Other currentliabilities 1,190,000 230,000 Long-term liabilities 2,500,000 1,300,000 Common stock 553,000 124,000 [E] APIC 4,070,250 155,000 [E] Retained earnings 6,956,350 348,000 $16,279,600 $2,335,000 $ $ $