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 5320,000 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 Credit Subsidiary: Cash 125.000 x Accumulated depreciation 0 Gain on sale of equipment 140,000 x Property, plant & equipment 37,500 x Parent: Property, plant & equipment 125,000 x Cash 125,000 X Ilgaini Gain on sale of equipment Property, plant & equipment 15.000 x 0 Accumulated depreciation O 52,500 x [Idepor) Accumulated depreciation 6,823 x 0 Depreciation Expense 6,633 x Debit 52 500 X 37.500 X b. Compute the remaining portion of the deferred gain on January 1, 2013. Round your answer to nearest whole number. $ 30,667 X 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. 141,000 x (20,500) * Net income of subsidiary AAP Depreciation Deferred gain on intercompany sale Income (loss) from subsidiary 6,833 x 127,333 x 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 EOY Unamortized AAP Gain on intercompany sale Equity investment 124,000 155,000 225,000 x 219,500 x (30,667) * 816,334 e. Prepare the consolidation entries for the year ended December 31, 2013. Consolidation Worksheet Description Debit Credit [C] Income (loss) from subsidiary 0 x Dividends 0 0 x Equity investment 0 0 X [E] Common stock 0 x . - APIC 0 X 0 X Retained earnings Equity investment Customer list > 0 [A] 0 x o o o o o o o o oo Goodwill 0 x - 0 x 0 X O 0 x 0 x Equity investment [D] Operating expenses Customer list [lgain] Equity Investment Property, plant & equipment Accumulated depreciation [ldepr] Accumulated depreciation Depreciation Expense > 0 X o 0 0 X . 0 x o o 0 0 x 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. Elimination Entries Income statement: Parent Sub Dr Cr Consolidated Sales $10,000,000 $1,004,000 OX Cost of goods sold (7,200,000) (600,000) 0 x Gross profit 2,800,000 404,000 $ OX Income (loss) from subsidiary 127,417 [C] 0 Operating expenses (1,500,000) (260,000) [D] OX 0 x [ldepr] OX Net income $1,427,417 $144,000 $ 0 x Statement of retained earnings: BOY retained earnings $5,814,300 $225,000 [E] 0X $ 0x Net income 1,427,417 144,000 0 x Dividends (285,200) (20,000) 0 x [C] OX EOY retained earnings $6,956,517 $349,000 $ Ox Balance sheet: Assets Cash $1,058,100 $326,000 $ 0 x Accounts receivable 1,750,000 430,000 0 x Inventory 2,600,000 550,000 0 x PPE, net 10,060,000 1,030,000 [lgain) OX 0 x [lgain] 0X [ldepr] OX Customer List [A] 0 x 0 * [D] 0 x Goodwill [A] OX OX Equity investment 816,334 OX 0 x [C] 0 0X [E] 0X [A] $16,284,434 $2,336,000 $ OX Liabilities and stockholders' equity Accounts payable $1,010,000 $178,000 $ 0 x Other currentliabilities 1,190,000 230,000 0 x Long-term liabilities 2,500,000 1,300,000 OX Common stock 553,000 124,000 [E] OX OX APIC 4,074,917 155,000 [E] 0X 0 X Retained earnings 6,956,517 349,000 0X $16,284,434 $2,336,000 $ 0 x $ OX $ 0 x [lgain]
