Question

Determining ending consolidated balances in the second year following the acquisition—Equity method Assume that your company...

Determining ending consolidated balances in the second year following the acquisition—Equity method
Assume that your company acquired a subsidiary on January 1, 2012. The purchase price was $650,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets:



[A] Asset

Original
Amount
Original
Useful Life
(years)
Property, plant and equipment (PPE), net $325,000 20
Goodwill 325,000 Indefinite
$650,000

The AAP asset relating to undervalued PPE with a 20-year useful life has been depreciated as part of the parent's equity method accounting. The financial statements of the parent and its subsidiary for the year ended December 31, 2013, are as follows:

Parent Subsidiary Parent Subsidiary
Income statement: Balance sheet:
Sales $5,500,000 $1,210,000 Assets
Cost of goods sold (3,960,000) (720,000) Cash $1,019,300 $319,200
Gross profit 1,540,000 490,000 Accounts receivable 1,398,000 278,400
Equity income 161,750 Inventory 2,134,000 357,600
Operating expenses (825,000) (312,000) Equity investment 1,570,300
Net income $876,750 $178,000 Property, plant and equipment (PPE), net 11,365,200 661,600
$17,486,800 $1,616,800
Statement of retained earnings:
BOY retained earnings $3,760,550 $620,000 Liabilities and stockholders' equity
Net income 876,750 178,000 Accounts payable $805,200 $114,400
Dividends (182,350) (25,200) Accrued liabilities 957,000 149,600
Ending retained earnings $4,454,950 $772,800 Long-term liabilities 7,000,000 400,000
Common stock 502,450 80,000
APIC 3,767,200 100,000
Retained earnings 4,454,950 772,800
$17,486,800 $1,616,800

At what amount will the following accounts appear on the consolidated financial statements?

Note: Do not use negative signs with your answers.

a. Sales Answer
b. Equity income Answer
c. Operating expenses Answer
d. Accounts receivable Answer
e. Equity investment Answer
f. Property plant and equipment (PPE) net Answer
g. Goodwill Answer
h. Common stock Answer
i. Retained earnings Answer
0 0
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Answer #1
Consolidated Financial Statements
S.no Particulars Parent subsidiary consolidated
$ $ $
a Sales 5,500,000 1,210,000 6,710,000
b Equity income 161,750 0 161,750
c Operating expenses 825,000 312,000 1,137,000
d Accounts Receivables 1,398,000 278,400 1,676,400
e Equity investment 1,570,300 0 1,570,300
f Propert,Plant &Equipment(net) 11,365,200 661,600 12,026,800
g Goodwill 325,000 0 325,000
h Common Stock 502,450 80,000 582,450
i Retained Earnings 4,454,950 772,800 5,227,750

> Correct Answers:
a. 6,710,000
b. 0
c. ?
d. 1,676,400
e. 0
f. ?
g. 325,000
h. 502,450
i. 4,454,950

Mike Sapienza Fri, Apr 9, 2021 2:24 PM

> Followup:
Operating Expense (c.) is 1,153,250. Still unable to figure out PPE net. You need to take the subsidiary's PPE net and add it to the 325000 that's given initially as PPE. Not sure what to do from there though. Hope this helps out!

Mike Sapienza Fri, Apr 9, 2021 2:49 PM

> The PPE (f.) is 12,319,300.

Mike Sapienza Fri, Apr 9, 2021 3:50 PM

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