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 the financial statements of the parent and its subsidiary as of December 31, 2016. The parent uses the cost method of pre-consolidation investment bookkeeping.

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

$Answer

c. Prior to preparing consolidated financial statements, compute the amount of equity income the parent would have reported for the year ended December 31, 2016, assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping.

$Answer

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

Consolidation Journal
	Description	Debit	Credit
[ADJ]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[C]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[E]	BOY Common stock (Subsidiary)	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[A]	PPE, net	Answer	Answer
	Patent	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
[D]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	Patent	Answer	Answer
[Igain]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer Mark 0.00 out of 1.00
[Idep]	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer
	AnswerBOY Retained earnings-ParentBOY Retained earnings-SubsidiaryDeprec. & amort. expenseDividendsEquity investmentGoodwillIncome (loss) from subsidiaryPPE, net	Answer	Answer

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
				Parent		Subsidiary			Debit		Credit			Consolidated
Income statement
Sales				$1,300,000		$598,000								Answer
Cost of goods sold				(715,000)		(364,000)								Answer
Gross profit				585,000		234,000								Answer
Deprec. & amort. expense				(39,000)		(26,000)		[D]	Answer		Answer		[Idep]	Answer
Operating expenses				(390,000)		(104,000)								Answer
Interest expense				(19,500)		(6,500)								Answer
Total Expenses				(448,500)		(136,500)								Answer
Income (loss) from subsidiary				45,500				[C]	Answer					Answer
Net income				$182,000		$97,500								Answer
Retained earnings statement:
BOY retained earnings				$715,000		$325,000		[E]	Answer		Answer		[ADJ]	Answer
Net income				182,000		97,500								Answer
Dividends				(149,500)		(45,500)					Answer		[C]	Answer
Ending retained earnings				$747,500		$377,000								Answer
Balance sheet:
Assets
Cash				$117,000		$78,000								Answer
Accounts receivable				156,000		117,000								Answer
Inventory				364,000		182,000								Answer
Equity investment				862,000		-		[ADJ]	Answer		Answer		[E]	Answer
								[Igain]	Answer		Answer		[A]
PPE, net				442,000		312,000		[A]	Answer		Answer		[D]	Answer
								[Idep]	Answer		Answer		[Igain]
Other assets				169,000		286,000								Answer
Patent								[A]	Answer		Answer		[D]	Answer
Goodwill				-		-		[A]	Answer					Answer
Total assets				2,110,000		$975,000								Answer
Liabilities & stockholders' equity
Accounts payable				$325,000		$70,200								Answer
Accrued liabilities				32,500		59,800								Answer
Notes payable				195,000		78,000								Answer
Common stock				810,000		390,000		[E]	Answer					Answer
EOY Retained earnings				747,500		377,000			-		-			Answer
Total liabilities and equity				$2,110,000		$975,000			Answer		Answer			Answer