Prepare consolidation spreadsheet for intercompany sale of land - Equity method Assume that a parent company acquired its subsidiary on January 1, 2011, at a purchase price that was $305,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $205,000 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 parent's equity method accounting. The remaining $100,000 was assigned to Goodwill. In 2012, the wholly owned subsidiary sold Land to the parent for $105,000. The Land was reported on the subsidiary's 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, 2013 are presented in d. below:

a. Show the computation to yield the $33,000 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate.

Net income of subsidiary	Answer Mark 0.00 out of 1.00
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 Mark 0.00 out of 1.00
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 Mark 0.00 out of 1.00

b. Show the computation to yield the $505,175 Equity Investment account balance reported by the parent on December 31, 2013. Hint: Use negative signs with answers when appropriate.

Common stock	Answer Mark 0.00 out of 1.00
APIC	Answer Mark 0.00 out of 1.00
BOY Retained earnings	Answer Mark 0.00 out of 1.00
BOY Unamortized AAP	Answer Mark 0.00 out of 1.00
Gain on intercompany sale of land	Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	Answer Mark 0.00 out of 1.00
Dividends	Answer Mark 0.00 out of 1.00
Equity investment	Answer Mark 0.00 out of 1.00

c. Prepare the consolidation entries for the year ended December 31, 2013.

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 Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Dividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
	AnswerCost of goods soldPrior year intercompany gross profitCurrent 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 Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[E]	Common stock	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	APIC	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[A]	Patent	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[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 Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[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 Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	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 Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00

d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$3,000,000	$376,000					$Answer Mark 0.00 out of 1.00
Cost of goods sold	(2,100,000)	(225,000)					Answer Mark 0.00 out of 1.00
Gross profit	900,000	151,000					$Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	33,000		Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 1.00 out of 1.00
Operating expenses	(570,000)	(97,500)	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Net income	$363,000	$53,500					$Answer Mark 0.00 out of 1.00
Statement of retained earnings:
BOY retained earnings	$1,477,200	$193,750	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00			$Answer Mark 0.00 out of 1.00
Net income	363,000	53,500					Answer Mark 0.00 out of 1.00
Dividends	(83,875)	(6,825)			Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00
EOY retained earnings	$1,756,325	$240,425					$Answer Mark 0.00 out of 1.00
Balance sheet:
Assets
Cash	$341,566	$122,211					$Answer Mark 0.00 out of 1.00
Accounts receivable	384,000	87,000					Answer Mark 0.00 out of 1.00
Inventory	582,000	111,750					Answer Mark 0.00 out of 1.00
PPE, net	2,799,600	206,750			$Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00
Patent			Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00	$Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00
Goodwill			Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Equity investment	505,175		Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00	$Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 1.00 out of 1.00
					$Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Iloss]
					$Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Iloss]
	$Answer Mark 0.00 out of 1.00	$Answer Mark 0.00 out of 1.00					$Answer Mark 0.00 out of 1.00
Liabilities and stockholders' equity
Accounts payable	$224,700	$44,760					$Answer Mark 0.00 out of 1.00
Other current liabilities	276,816	61,276					Answer Mark 0.00 out of 1.00
Long-term liabilities	1,500,000	125,000					Answer Mark 0.00 out of 1.00
Common stock	490,500	25,000	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
APIC	364,000	31,250	Answer[C][E][A][D][Igain][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Retained earnings	1,756,325	240,425					Answer Mark 0.00 out of 1.00
	$4,612,341	$527,711