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Prepare consolidation spreadsheet for intercompany sale of equipmentCost method-- Assume that a parent company acquired a subsidiary on January 1, 2012 for $862,000. The purchase

Prepare consolidation spreadsheet for intercompany sale of equipmentCost method-- Assume that a parent company acquired a subsidiary on January 1, 2012 for $862,000. The purchase price was $329,000 in excess of the book value of the subsidiarys Stockholders Equity on the acquisition date. On the acquisition date, the subsidiarys 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 $23,000 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, $114,000 for an unrecorded patent with an 8-year remaining life and $127,000 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 $131,700. The parent had acquired the equipment at a cost of $127,800 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

862,000

-

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

2,110,000

$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

810,000

390,000

Dividends

(149,500)

(45,500)

Retained earnings

747,500

377,000

Ending retained earnings

$747,500

$377,000

Total liabilities and equity

2,110,000

$975,000

a) Prepare the consolidation entries for the year ended December 31, 2016.

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