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 subsidiary's 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 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 [l] entries for the year of sale. Journal Entries Description Debit Credit Subsidiary: Cash Property, plant & equipment Parent: [lgain] Property, plant & equipment [ldepr] b. Compute the remaining portion of the deferred gain on January 1, 2016. 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. Note: Use a negative sign with an answer to indicate a reduction in the computation. Net income of subsidiary AAP Depreciation Income (loss) from subsidiary d. Compute the Equity Investment balance of $800,000 on December 31, 2016. Note: Use a negative sign with an answer to indicate a reduction in the computation. Common stock APIC EOY Retained earnings EOY Unamortized AAP Gain on intercompany sale Equity investment e. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Worksheet Description Debit Credit [C] Dividends [E] APIC Retained earnings [A] Customer list [D] Operating expenses [lgain] Equity Investment [ldepr] f. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends. Elimination Entries Dr Cr Income statement: Consolidated Sales $ Parent Sub $10,000,000 $1,000,000 (7,200,000) (600,000) 2,800,000 400,000 126,000 (1,500,000) (260,000) $1,426,000 $140,000 $ [C] [D] [ldepr] $ 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 [E] $ $225,000 140,000 $5,814,300 1,426,000 (285,200) $6,955,100 [C] (20,000) $345,000 Cash $1,058,100 $ Accounts receivable Inventory PPE, net 1,750,000 2,600,000 10,060,000 [lgain] $322,000 430,000 550,000 1,030,000 [lgain] [ldepr] [A] [A] [lgain] Customer List Goodwill Equity investment 800,000 [C] [E] [A] $16,268,100 $2,332,000 $ $ Liabilities and stockholders' equity Accounts payable Other currentliabilities Long-term liabilities Common stock $1,010,000 $178,000 1,190,000 230,000 2,500,000 1,300,000 553,000 124,000 4,060,000 155,000 6,955,100 345,000 $16,268,100 $2,332,000 [E] APIC [E] Retained earnings $ $ $
