Prepare consolidation spreadsheet for intercompany sale of equipment - Equitymethod Assume aparent company acquired its subsidiary on January 1, 2009, at a purchase price that was $305,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $205,000 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 $125,000. 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, 2013 follow in partf. 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.

Note: Round answers to the nearest whole number.

Journal Entries
	Description	Debit	Credit
Subsidiary:	Cash
	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	Property, plant & equipment
Parent:	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[Igain]	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	Property, plant & equipment
	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[Idepr]	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	CashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends

b. Compute the remaining portion of the deferred gain on January 1, 2013. Round answer to nearest whole number. $Answer

c. Show the computation to yield the $127,333 ofIncome (loss) from subsidiaryreported 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
CashPPE, netAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleOperating expensesDepreciation of AAP assetEquity incomeCommon stockAPICRetained earningsBOY unamortized AAPDividends
Income (loss) from subsidiary

d. Compute the Equity Investment balance of $800,166 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

e. Prepare the consolidationentries for the year ended December 31, 2013.

Consolidation Worksheet
	Description	Debit	Credit
[C]	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetIncome (loss) from subsidiaryCommon stockAPICRetained earningsBOY unamortized AAPDividends
	Dividends
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[E]	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	APIC
	Retained earnings
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[A]	Customer list
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[D]	Operating expenses
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[Igain]	Equity Investment
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
[Idepr]	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends
	CashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends

f. Prepare the consolidation spreadsheet for the year ended December 31, 2013.

Use negative signswith 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	$1,001,000
Cost of goods sold	(7,200,000)	(600,000)
Gross profit	2,800,000	401,000
Income (loss) from subsidiary	127,333		[C]
Operating expenses	(1,500,000)	(260,000)	[D]			[Idepr]
Net income	$1,427,333	$141,000
Statement of retained earnings:
BOY retained earnings	$5,814,300	$225,000	[E]
Net income	1,427,333	141,000
Dividends	(285,200)	(20,000)				[C]
EOY retained earnings	$6,956,433	$346,000
Balance sheet:
Assets
Cash	$1,058,100	$323,000
Accounts receivable	1,750,000	430,000
Inventory	2,600,000	550,000
PPE, net	10,060,000	1,030,000	[Igain]			[Igain]
			[Idepr]
Customer List			[A]			[D]
Goodwill			[A]
Equity investment	800,166		[Igain]			[C]
						[E]
						[A]
	$16,268,266	$2,333,000
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	4,058,833	155,000	[E]
Retained earnings	6,956,433	346,000
	$16,268,266	$2,333,000