Prepare consolidation spreadsheet for intercompany sale of equipment-Cost method Assume that a parent company acquired a subsidiary on January 1, 2012 for $922,000. The purchase price was $389,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. On the acquisition date, the subsidiary's stockholders equity was comprised of $390,000 of no-par common stock and $143,000 of retained earnings. The Acquisition Accounting Premium (AAP) was assigned as follows: an increase of $43,000 in accounts receivable that were entirely collected during the year after acquisition, an increase of $65,000 for property, plant and equipment that has 10 years of remaining useful life, $134,000 for an unrecorded patent with an 8-year remaining life and $147,000 for goodwill. All amortizable components of the AAP are amortized using the straight-line method. On January 1, 2014, the parent sold Equipment to the subsidiary for a cash price of $125,700. The parent had acquired the equipment at a cost of $121,800 and depreciated the equipment over its 12-year useful life using the straight-line method (no salvage value). The parent had depreciated the equipment for 2 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life. Following are financial statements of the parent and its subsidiary as of December 31, 2016. The parent uses the cost method of pre-consolidation investment bookkeeping. Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $1,300,000 $598,000 Assets Cost of goods sold (715,000) (364,000) Cash $117,000 $78,000 Gross profit 585,000 234,000 Accounts receivable 156,000 117,000 Deprec. & amort. Expense (39,000) (26,000) Inventory 364,000 182,000 Operating expenses (390,000) (104,000) Equity investment 922,000 Interest expense (19,500) (6,500) Property, plant & equipment 442,000 312,000 Total expenses (448,500) (136,500) Other assets 169,000 286,000 Income (loss) from subsidiary 45,500 Total assets 2,170,000 $975,000 Net income $182,000 $97,500 Liabilities and stockholders' equity Accounts payable $325,000 $70,200 Statement of retained earnings Accrued liabilities 32,500 59,800 BOY retained earnings $715,000 $325,000 Notes payable 195,000 78,000 Net income 182,000 97,500 Common stock 870,000 390,000 Dividends (149,500) (45,500) Retained earnings 747,500 377,000 Ending retained earnings $747,500 $377,000 Total liabilities and equity 2,170,000 $975,000 Parent Subsidiary $78,000 117,000 182,000 Parent Subsidiary Income statement Balance sheet Sales $1,300,000 $598,000 Assets Cost of goods sold (715,000) (364,000) Cash Gross profit 585,000 234,000 Accounts receivable Deprec. & amort. Expense (39,000) (26,000) Inventory Operating expenses (390,000) (104,000) Equity investment Interest expense (19,500) (6,500) Property, plant & equipment Total expenses (448,500) (136,500) Other assets Income (loss) from subsidiary 45,500 Total assets Net income $182,000 $97,500 Liabilities and stockholders' equity Accounts payable Statement of retained earnings Accrued liabilities BOY retained earnings $715,000 $325,000 Notes payable Net income 182,000 97,500 Common stock Dividends (149,500) (45,500) Retained earnings Ending retained earnings $747,500 $377,000 Total liabilities and equity $117,000 156,000 364,000 922,000 442,000 169,000 2,170,000 312,000 286,000 $975,000 $325,000 32,500 195,000 870,000 747,500 2,170,000 $70,200 59,800 78,000 390,000 377,000 $975,000 e. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Journal Description Debit Credit [AD]] 0 0 0 0 [C] . 0 0 > 0 0 [E] BOY Common stock (Subsidiary) 0 0 . 0 0 > 0 0 [A] 0 0 PPE, net Patent 0 0 0 0 0 0 0 [D] 0 0 0 Patent 0 0 0 [lgain] 0 > 0 0 0 [ldep] 0 0 0 f. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses inc. Total expenses) and Dividends. Consolidation Worksheet Subsidiary Debit Parent Credit Consolidated Income statement $ 0 0 0 $598,000 (364,000) 234,000 (26,000) (104,000) (6,500) (136,500) [D] 0 0 [ldep] 0 $1,300,000 (715,000) 585,000 (39,000) (390,000) (19,500) (448,500) 45,500 $182,000 0 0 Sales Cost of goods sold Gross profit Deprec. & amort. expense Operating expenses Interest expense Total Expenses Income (loss) from subsidiary Net income Retained earnings statement: BOY retained earnings Net income Dividends Ending retained earnings 0 [C] 0 0 $97,500 $ 0 [E] o 0 0 [AD]] $ 0 0 $715,000 182,000 (149,500) $747,500 $325,000 97,500 (45,500) $377,000 0 [C] 0 $ 0 $ 0 Balance sheet: Assets Cash Accounts receivable Inventory Equity investment $117,000 156,000 364,000 922,000 $78,000 117,000 182,000 0 0 0 0 0 0 [AD] [lgain] [A] [ldep] [E] 0 [A] 0 [D] 0 [lgain] PPE, net 442,000 312,000 0 @ 0 169,000 286,000 0 0 [D] 0 [A] [A] 0 0 0 0 2,170,000 $975,000 $ 0 Other assets Patent Goodwill Total assets Liabilities & stockholders' equity Accounts payable Accrued liabilities Notes payable Common stock EOY Retained earnings Total liabilities and equity $ 0 0 0 $325,000 32,500 195,000 870,000 747,500 $2,170,000 $70,200 59,800 78,000 390,000 377,000 $975,000 [E] E] 0 0 0 0 $ UA 0 $ 0 $ 0 Prepare consolidation spreadsheet for intercompany sale of equipment-Cost method Assume that a parent company acquired a subsidiary on January 1, 2012 for $922,000. The purchase price was $389,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. On the acquisition date, the subsidiary's stockholders equity was comprised of $390,000 of no-par common stock and $143,000 of retained earnings. The Acquisition Accounting Premium (AAP) was assigned as follows: an increase of $43,000 in accounts receivable that were entirely collected during the year after acquisition, an increase of $65,000 for property, plant and equipment that has 10 years of remaining useful life, $134,000 for an unrecorded patent with an 8-year remaining life and $147,000 for goodwill. All amortizable components of the AAP are amortized using the straight-line method. On January 1, 2014, the parent sold Equipment to the subsidiary for a cash price of $125,700. The parent had acquired the equipment at a cost of $121,800 and depreciated the equipment over its 12-year useful life using the straight-line method (no salvage value). The parent had depreciated the equipment for 2 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life. Following are financial statements of the parent and its subsidiary as of December 31, 2016. The parent uses the cost method of pre-consolidation investment bookkeeping. Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $1,300,000 $598,000 Assets Cost of goods sold (715,000) (364,000) Cash $117,000 $78,000 Gross profit 585,000 234,000 Accounts receivable 156,000 117,000 Deprec. & amort. Expense (39,000) (26,000) Inventory 364,000 182,000 Operating expenses (390,000) (104,000) Equity investment 922,000 Interest expense (19,500) (6,500) Property, plant & equipment 442,000 312,000 Total expenses (448,500) (136,500) Other assets 169,000 286,000 Income (loss) from subsidiary 45,500 Total assets 2,170,000 $975,000 Net income $182,000 $97,500 Liabilities and stockholders' equity Accounts payable $325,000 $70,200 Statement of retained earnings Accrued liabilities 32,500 59,800 BOY retained earnings $715,000 $325,000 Notes payable 195,000 78,000 Net income 182,000 97,500 Common stock 870,000 390,000 Dividends (149,500) (45,500) Retained earnings 747,500 377,000 Ending retained earnings $747,500 $377,000 Total liabilities and equity 2,170,000 $975,000 Parent Subsidiary $78,000 117,000 182,000 Parent Subsidiary Income statement Balance sheet Sales $1,300,000 $598,000 Assets Cost of goods sold (715,000) (364,000) Cash Gross profit 585,000 234,000 Accounts receivable Deprec. & amort. Expense (39,000) (26,000) Inventory Operating expenses (390,000) (104,000) Equity investment Interest expense (19,500) (6,500) Property, plant & equipment Total expenses (448,500) (136,500) Other assets Income (loss) from subsidiary 45,500 Total assets Net income $182,000 $97,500 Liabilities and stockholders' equity Accounts payable Statement of retained earnings Accrued liabilities BOY retained earnings $715,000 $325,000 Notes payable Net income 182,000 97,500 Common stock Dividends (149,500) (45,500) Retained earnings Ending retained earnings $747,500 $377,000 Total liabilities and equity $117,000 156,000 364,000 922,000 442,000 169,000 2,170,000 312,000 286,000 $975,000 $325,000 32,500 195,000 870,000 747,500 2,170,000 $70,200 59,800 78,000 390,000 377,000 $975,000 e. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation Journal Description Debit Credit [AD]] 0 0 0 0 [C] . 0 0 > 0 0 [E] BOY Common stock (Subsidiary) 0 0 . 0 0 > 0 0 [A] 0 0 PPE, net Patent 0 0 0 0 0 0 0 [D] 0 0 0 Patent 0 0 0 [lgain] 0 > 0 0 0 [ldep] 0 0 0 f. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses inc. Total expenses) and Dividends. Consolidation Worksheet Subsidiary Debit Parent Credit Consolidated Income statement $ 0 0 0 $598,000 (364,000) 234,000 (26,000) (104,000) (6,500) (136,500) [D] 0 0 [ldep] 0 $1,300,000 (715,000) 585,000 (39,000) (390,000) (19,500) (448,500) 45,500 $182,000 0 0 Sales Cost of goods sold Gross profit Deprec. & amort. expense Operating expenses Interest expense Total Expenses Income (loss) from subsidiary Net income Retained earnings statement: BOY retained earnings Net income Dividends Ending retained earnings 0 [C] 0 0 $97,500 $ 0 [E] o 0 0 [AD]] $ 0 0 $715,000 182,000 (149,500) $747,500 $325,000 97,500 (45,500) $377,000 0 [C] 0 $ 0 $ 0 Balance sheet: Assets Cash Accounts receivable Inventory Equity investment $117,000 156,000 364,000 922,000 $78,000 117,000 182,000 0 0 0 0 0 0 [AD] [lgain] [A] [ldep] [E] 0 [A] 0 [D] 0 [lgain] PPE, net 442,000 312,000 0 @ 0 169,000 286,000 0 0 [D] 0 [A] [A] 0 0 0 0 2,170,000 $975,000 $ 0 Other assets Patent Goodwill Total assets Liabilities & stockholders' equity Accounts payable Accrued liabilities Notes payable Common stock EOY Retained earnings Total liabilities and equity $ 0 0 0 $325,000 32,500 195,000 870,000 747,500 $2,170,000 $70,200 59,800 78,000 390,000 377,000 $975,000 [E] E] 0 0 0 0 $ UA 0 $ 0 $ 0