x C u ng entry in Part b included the dollar amount that it did. 45. Consolidation at the end of the first year subsequent to date of acquisition Equity method Assume that the parent company acquires its subsidiary on January 1, 2016, by exchanging 41.300 shares of its par value Common Stock with a market value on the acquisition date of per share, for all of the outstanding voting shares of the acquire You have been charged with preparing the con- solidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's individual net assets had fair values that equacd their book values except for the following: PPE assets are undervalued by $81.000 (depreciation $5,400 per year, and the subsidiary has an unrecorded Patent that has a fair value of $261,000 taman zation $32,625 per year). Any remaining difference between the purchase price and the fair value o the identifiable assets results from expected synergies that are expected to be realized as a result of the business combination. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016: ET Parent Subsidiary Parent Subsidiary Income statement: Sales Cost of goods sold.. Gross profit. ............ Equity income... Operating expenses.... Net Income $4,950,000 (3,465,000) 1,485,000 169,875 (940,500) $ 714,375 $1,485,000 (891.000) 594,000 Balance sheet: Assets Cash. Accounts receivable Inventory Equity investment.... Property, plant and equipment (PPE), net... $ 382,635 344,520 442,530 (386,100) $ 207,900 $ 275,355 633,600 960,300 1,632,690 3,629,340 $7,131,285 818,730 $1,988,415 Statement of retained earnings: BOY retained earnings . . . . $2,570,400 Net income............. 714,375 Dividends (144,180) Ending retained earnings .. $362,340 430,650 $ 767,250 Liabilities and stockholders' equity 207,900 - Accounts payable.... (31,185) P Accrued liabilities.... $ 943,965 Long-term liabilities .. Common stock... APIC........... Retained earnings ... 566,100 2,631,600 3,140,595 $7,131,285 $ 141,570 185,130 495,000 99,000 123,750 943,96 $1,988,41 a. Prepare the journal entry to record the acquisition of the subsidiary b. Show the computations to yield the equity income of $169,875 reported by the parent in its income statement. c. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,632,690. d. Prepare the consolidation entries for the year ended December 31, 2016. e. Prepare the consolidated spreadsheet for the year ended December 31, 2016. What additional assets have been recognized on the consolidated balance sheet that were not explicitly reported on the balance sheets of either the parent or the subsidiary? Why were they not previously reported in pre-acquisition financial statements of the parent or the subsidiary? the ongolidated balance sheet at the end of the LO2 x C u ng entry in Part b included the dollar amount that it did. 45. Consolidation at the end of the first year subsequent to date of acquisition Equity method Assume that the parent company acquires its subsidiary on January 1, 2016, by exchanging 41.300 shares of its par value Common Stock with a market value on the acquisition date of per share, for all of the outstanding voting shares of the acquire You have been charged with preparing the con- solidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's individual net assets had fair values that equacd their book values except for the following: PPE assets are undervalued by $81.000 (depreciation $5,400 per year, and the subsidiary has an unrecorded Patent that has a fair value of $261,000 taman zation $32,625 per year). Any remaining difference between the purchase price and the fair value o the identifiable assets results from expected synergies that are expected to be realized as a result of the business combination. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016: ET Parent Subsidiary Parent Subsidiary Income statement: Sales Cost of goods sold.. Gross profit. ............ Equity income... Operating expenses.... Net Income $4,950,000 (3,465,000) 1,485,000 169,875 (940,500) $ 714,375 $1,485,000 (891.000) 594,000 Balance sheet: Assets Cash. Accounts receivable Inventory Equity investment.... Property, plant and equipment (PPE), net... $ 382,635 344,520 442,530 (386,100) $ 207,900 $ 275,355 633,600 960,300 1,632,690 3,629,340 $7,131,285 818,730 $1,988,415 Statement of retained earnings: BOY retained earnings . . . . $2,570,400 Net income............. 714,375 Dividends (144,180) Ending retained earnings .. $362,340 430,650 $ 767,250 Liabilities and stockholders' equity 207,900 - Accounts payable.... (31,185) P Accrued liabilities.... $ 943,965 Long-term liabilities .. Common stock... APIC........... Retained earnings ... 566,100 2,631,600 3,140,595 $7,131,285 $ 141,570 185,130 495,000 99,000 123,750 943,96 $1,988,41 a. Prepare the journal entry to record the acquisition of the subsidiary b. Show the computations to yield the equity income of $169,875 reported by the parent in its income statement. c. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,632,690. d. Prepare the consolidation entries for the year ended December 31, 2016. e. Prepare the consolidated spreadsheet for the year ended December 31, 2016. What additional assets have been recognized on the consolidated balance sheet that were not explicitly reported on the balance sheets of either the parent or the subsidiary? Why were they not previously reported in pre-acquisition financial statements of the parent or the subsidiary? the ongolidated balance sheet at the end of the LO2