Prepare consolidation spreadsheet for intercompany sale of land - Equity method Assume that a parent company acquired its subsidiary on January 1, 2014, at a purchase price that was $300,000 in excess of the book value of the subsidiarys Stockholders Equity on the acquisition date. Of that excess, $200,000 was assigned to an unrecorded Patent owned by the subsidiary that is being amortized over a 10-year period. The [A] Patent asset has been amortized as part of the parents equity method accounting. The remaining $100,000 was assigned to Goodwill. In 2015, the wholly owned subsidiary sold Land to the parent for $100,000. The Land was reported on the subsidiarys balance sheet for $70,000 on the date of sale. The parent uses the equity method to account for its Equity Investment.

Financial statements of the parent and its subsidiary for the year ended December 31, 2016 are presented in d. below:

a. Show the computation to yield the $32,500 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2016. Hint: Use negative signs with answers when appropriate.

Net income of subsidiary	Answer
AnswerCashAccounts receivableInventoryPPE, netPatentGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investment	Answer
AnswerCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitIncome (loss) from subsidiaryDividendsGain on intercompany sale of landLoss on intercompany sale of land	Answer

b. Show the computation to yield the $505,675 Equity Investment account balance reported by the parent on December 31, 2016. Hint: Use negative signs with answers when appropriate.

Common stock	Answer
APIC	Answer
BOY Retained earnings	Answer
BOY Unamortized AAP	Answer
Gain on intercompany sale of land	Answer
Income (loss) from subsidiary	Answer
Dividends	Answer
Equity investment	Answer

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

Consolidation Worksheet

Description

Debit

Credit

[C]

AnswerCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitIncome (loss) from subsidiaryDividendsGain on intercompany sale of landLoss on intercompany sale of land

Answer

Answer

Dividends

Answer

Answer

AnswerCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitIncome (loss) from subsidiaryDividendsGain on intercompany sale of landLoss on intercompany sale of land

Answer

Answer

[E]

Common stock

Answer

Answer

APIC

Answer

Answer

AnswerAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitDividendsGain on intercompany sale of landLoss on intercompany sale of land

Answer

Answer

AnswerCashAccounts receivableInventoryPPE, netPatentGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investment

Answer

Answer

[A]

Patent

Answer

Answer

AnswerCashAccounts receivableInventoryPPE, netPatentGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investment

Answer

Answer

AnswerCashAccounts receivableInventoryPPE, netPatentGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investment

Answer

Answer

[D]

AnswerCashAccounts receivableInventoryAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitEquity incomeDividendsGain on intercompany sale of landLoss on intercompany sale of land

Answer

Answer

AnswerCashAccounts receivableInventoryPPE, netPatentGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investment

Answer

Answer

[Igain]

AnswerCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitDividendsGain on intercompany sale of landLoss on intercompany sale of land

Answer

Answer

AnswerCashAccounts receivableInventoryPPE, netPatentGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investment

d. Prepare the consolidation spreadsheet for the year ended December 31, 2016. Hint: Use negative signs with answers when appropriate.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$3,000,000	$375,000					$Answer
Cost of goods sold	(2,100,000)	(225,000)					Answer
Gross profit	900,000	150,000					$Answer
Income (loss) from subsidiary	32,500		Answer[C][E][A][D][Igain][Iloss]	Answer			Answer
Operating expenses	(570,000)	(97,500)	Answer[C][E][A][D][Igain][Iloss]	Answer			Answer
Net income	$362,500	$52,500					$Answer
Statement of retained earnings:
BOY retained earnings	$1,477,200	$193,750	Answer[C][E][A][D][Igain][Iloss]	Answer			$Answer
Net income	362,500	52,500					Answer
Dividends	(83,375)	(6,825)			Answer	Answer[C][E][A][D][Igain][Iloss]	Answer
EOY retained earnings	$1,756,325	$239,425					$Answer
Balance sheet:
Assets
Cash	$341,566	$121,211					$Answer
Accounts receivable	384,000	87,000					Answer
Inventory	582,000	111,750					Answer
PPE, net	2,799,600	206,750			$Answer	Answer[C][E][A][D][Igain][Iloss]	Answer
Patent			Answer[C][E][A][D][Igain][Iloss]	Answer	$Answer	Answer[C][E][A][D][Igain][Iloss]	Answer
Goodwill			Answer[C][E][A][D][Igain][Iloss]	Answer			Answer
Equity investment	505,675		Answer[C][E][A][D][Igain][Iloss]	Answer	$Answer	Answer[C][E][A][D][Igain][Iloss]	Answer
					$Answer	Answer[C][E][A][D][Igain][Iloss]
					$Answer	Answer[C][E][A][D][Igain][Iloss]
	$Answer	$Answer					$Answer
Liabilities and stockholders equity
Accounts payable	$224,700	$44,760					$Answer
Other current liabilities	276,816	61,276					Answer
Long-term liabilities	1,500,000	125,000					Answer
Common stock	490,500	25,000	Answer[C][E][A][D][Igain][Iloss]	Answer			Answer
APIC	364,500	31,250	Answer[C][E][A][D][Igain][Iloss]	Answer			Answer
Retained earnings	1,756,325	239,425					Answer
	$4,612,841	$526,711					$Answer

Answer

Answer