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 $[$I$]$ entries for the year of sale.

Journal Entries

Description Debit Credit

Subsidiary: Cash Answer

Answer

Answer

Answer

Answer

Answer

Answer

Answer

Property, plant & equipment Answer

Answer

Parent: Answer

Answer

Answer

Answer

Answer

Answer

$[$Igain$]$ Answer

Answer

Answer

Property, plant & equipment Answer

Answer

Answer

Answer

Answer

$[$Idepr$]$ Answer

Answer

Answer

Answer

Answer

Answer

b$.$ Compute the remaining portion of the deferred gain on January $1,2016.$

$Answer

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 Answer

AAP Depreciation Answer

Answer

Answer

Income $($loss$)$ from subsidiary Answer

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 Answer

APIC Answer

EOY Retained earnings Answer

EOY Unamortized AAP Answer

Gain on intercompany sale Answer

Equity investment Answer

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