The file has one tab, labeled with a letter or two (“A” or “AD” for example). Do not alter that worksheet, keep it exactly as you received it. It should be either the first or the last tab in your workbook, but it must be there and intact.

Note that I use the convention positive numbers are debits and negative numbers, shown in parentheses, are credits. You should use that same convention in making adjustments.

On a new worksheet, you will consolidate Parent and Subsidiary. • Set up a consolidation worksheet with parent, subsidiary and columns for adjustments, and consolidated amounts. • At the bottom of your worksheet is an amount of Intercompany Sales, from Subsidiary to Parent. Those sales were made to generate a gross profit at the percentage indicated with the intercompany sales amount. Just to be clear, the Intercompany Sales amount is at the selling price from Subsidiary to Parent. • Of the intercompany sales, one-half of the sales remain in Parent Company’s inventory (part of Current Assets). Round if you must, do everything in whole dollars. Make appropriate adjustments for the inventory. • Parent Company charges a “management fee” to Subsidiary Company (related to services that Parent Company performs for Subsidiary). The fee is 1.5% of Subsidiary’s sales. Subsidiary records the expense in “Administrative expense.” Parent Company records the income in “Other Expense” (since it’s income, it reduces the “Other expense” amount).

SUBSIDIARY COMPANY
Statement of Financial Position
Current assets	998,000
PP&E	5,800,000
Accumulated depreciation	(100,000)
Goodwill	3,685,000
Patents and other noncur.	1,047,000
Investment in SubCo
Total assets	11,430,000
Current liabilities	(250,000)
Noncurrent liabilities	(2,500,000)
Common stock	(8,400,000)
Retained earnings	(280,000)
Total liabilities and equity	(11,430,000)
	-
Statement of Income
Sales	(10,000,000)
Cost of goods sold	4,950,000
Administrative expense	600,000
Technology expense	2,400,000
Marketing expense	950,000
Equity income SubCo	-
Other expense	800,000
Income tax expense	80,000
Net Income	(220,000)
PARENT COMPANY
Statement of Financial Position
Current assets	250,000
PP&E	18,750,000
Accumulated depreciation	(7,553,750)
Goodwill	10,830,013
Patents and other noncur.	8,915,250
Investment in SubCo	8,680,000
Total assets	39,871,513
Current liabilities	(535,000)
Noncurrent liabilities	(5,159,013)
Common stock	(24,675,000)
Retained earnings	(9,502,500)
Total liabilities and equity	(39,871,513)
Statement of Income
Sales	(29,095,000)
Cost of goods sold	14,570,000
Administrative expense	1,762,500
Technology expense	7,050,000
Marketing expense	2,585,000
Equity income SubCo	(220,000)
Other expense	2,350,000
Income tax expense	235,000
Net Income	(762,500)
Sub gross profit (interco sales)	51%
Intercompany Sales	500,000