Prepare consolidation spreadsheet for intercompany sale of equipmentCost method Assume that a parent company acquired a subsidiary on January 1, 2012 for $817,000. The purchase price was $284,000 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 $8,000 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, $99,000 for an unrecorded patent with an 8-year remaining life and $112,000 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 $127,200. The parent had acquired the equipment at a cost of $123,300 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					817,000		-
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					2,065,000		$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					765,000		390,000
Dividends				(149,500)		(45,500)			Retained earnings					747,500		377,000
Ending retained earnings				$747,500		$377,000			Total liabilities and equity					2,065,000		$975,000

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				817,000		-		[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				2,065,000		$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				765,000		390,000		[E]	Answer					Answer
EOY Retained earnings				747,500		377,000			-		-			Answer
Total liabilities and equity				$2,065,000		$975,000			Answer		Answer			Answer