Using the Cost Method, Complete the Consolidation Worksheet

COMPREHENSIVE REVIEW-COST METHOD A parent company acquired 80 percent of the stock of a subsidiary company on January 1, 2015, for $360,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $260,000, and Retained Earnings, $28,000. On January 1, 2015, the market value for the 20% of shares not purchased by the parent was $88,000. On January 1, 2015, the subsidiary's recorded book values were equal to fair values for all items except four: (1) accounts receivable had a book value of $60,000 and a fair value of $52,000, (2) prop- erty, plant & equipment, net had a book value of $100,000 and a fair value of $136,000, (3) patents had a book value of $70,000 and a fair value of $154,000, and (4) notes payable had a book value of $40,000 and a fair value of $28,000. Both companies use the FIFO inventory method and sell all of their inventories at least once per year. The year-end net balance of accounts receivables is collected in the following year. On the acquisition date, the subsidiary's property, plant & equipment, net had a remaining useful life of 5 years, the patents had a remaining useful life of 7 years, and notes payable had a remaining term of 4 years. On December 31, 2017, the parent sold a building to the subsidiary for $130,000. On this date, the building was carried on the parent's books (net of accumulated depreciation) at $100,000. Both com- panies estimated that the building has a remaining life of 5 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 30 percent of selling price (regardless of the direction of the sale). During 2019, intercompany sales amount to $48,000, of which $28,000 of merchandise remains in the ending inventory of the subsidiary. On December 31, 2019, $16,000 of these intercompany sales remained unpaid. Additionally, the par- ent's December 31, 2018 inventory includes $22,000 of merchandise purchased in the preceding year from the subsidiary. During 2018, intercompany sales amount to $40,000, and on December 31, 2018, $13,500 of these intercompany sales remained unpaid. Dr. Cr. Consolidated Consolidation Spreadsheet for the year ended December 31, 2019 Income Statement Parent Subsidiary Sales 920,000 400,000 Cost of goods sold (480,000) (236,000) Gross profit Depreciation & Amortization expense 440,000 (24,000) 164,000 (19,200) Other operating expenses Interest expense Dividend Income from Subsidiary Consolidated Net Income Noncontrolling Share of Net Income Controlling Share of Net Income (260,000) (12,000) 22,400 166,400 (52,600) (4,200) 0 0 88,000 0 88,000 166,400 Retained Earnings Statement Beginning Retained Earnings Net Income 436,600 166,400 220,000 88,000 Dividends Declared (120,000) (28,000) Ending Retained Earnings 483,000 280,000 Balance Sheet Cash Accounts Receivable Inventories Buildings and equipments, net 77,440 108,000 260,000 252,000 30,000 96,000 92,000 220,000 114,000 Other assets Patents Investment in Subsidiary 200,000 20,000 360,000 Goodwill Total Assets 1,171,440 658,000 Accounts payable Notes payable Other Liabilities Common stock Retained earnings Noncontrolling Interest 64,440 100,000 44,000 480,000 483,000 24,000 42,000 52,000 260,000 280,000 Total Liabilities and Equity 1,171,440 658,000 COMPREHENSIVE REVIEW-COST METHOD A parent company acquired 80 percent of the stock of a subsidiary company on January 1, 2015, for $360,000. On this date, the balances of the subsidiary's stockholders' equity accounts were Common Stock, $260,000, and Retained Earnings, $28,000. On January 1, 2015, the market value for the 20% of shares not purchased by the parent was $88,000. On January 1, 2015, the subsidiary's recorded book values were equal to fair values for all items except four: (1) accounts receivable had a book value of $60,000 and a fair value of $52,000, (2) prop- erty, plant & equipment, net had a book value of $100,000 and a fair value of $136,000, (3) patents had a book value of $70,000 and a fair value of $154,000, and (4) notes payable had a book value of $40,000 and a fair value of $28,000. Both companies use the FIFO inventory method and sell all of their inventories at least once per year. The year-end net balance of accounts receivables is collected in the following year. On the acquisition date, the subsidiary's property, plant & equipment, net had a remaining useful life of 5 years, the patents had a remaining useful life of 7 years, and notes payable had a remaining term of 4 years. On December 31, 2017, the parent sold a building to the subsidiary for $130,000. On this date, the building was carried on the parent's books (net of accumulated depreciation) at $100,000. Both com- panies estimated that the building has a remaining life of 5 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 30 percent of selling price (regardless of the direction of the sale). During 2019, intercompany sales amount to $48,000, of which $28,000 of merchandise remains in the ending inventory of the subsidiary. On December 31, 2019, $16,000 of these intercompany sales remained unpaid. Additionally, the par- ent's December 31, 2018 inventory includes $22,000 of merchandise purchased in the preceding year from the subsidiary. During 2018, intercompany sales amount to $40,000, and on December 31, 2018, $13,500 of these intercompany sales remained unpaid. Dr. Cr. Consolidated Consolidation Spreadsheet for the year ended December 31, 2019 Income Statement Parent Subsidiary Sales 920,000 400,000 Cost of goods sold (480,000) (236,000) Gross profit Depreciation & Amortization expense 440,000 (24,000) 164,000 (19,200) Other operating expenses Interest expense Dividend Income from Subsidiary Consolidated Net Income Noncontrolling Share of Net Income Controlling Share of Net Income (260,000) (12,000) 22,400 166,400 (52,600) (4,200) 0 0 88,000 0 88,000 166,400 Retained Earnings Statement Beginning Retained Earnings Net Income 436,600 166,400 220,000 88,000 Dividends Declared (120,000) (28,000) Ending Retained Earnings 483,000 280,000 Balance Sheet Cash Accounts Receivable Inventories Buildings and equipments, net 77,440 108,000 260,000 252,000 30,000 96,000 92,000 220,000 114,000 Other assets Patents Investment in Subsidiary 200,000 20,000 360,000 Goodwill Total Assets 1,171,440 658,000 Accounts payable Notes payable Other Liabilities Common stock Retained earnings Noncontrolling Interest 64,440 100,000 44,000 480,000 483,000 24,000 42,000 52,000 260,000 280,000 Total Liabilities and Equity 1,171,440 658,000