Question

Prepare consolidation spreadsheet for intercompany sale of equipment- Equity Method

Assume a parent company acquired its subsidiary on January 1, 2015, at a purchase price that was $222,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $132,000 was assigned to a Customer List that is being amortized over a 10-year period. The remaining $90,000 was assigned to Goodwill.

In January of 2018, the wholly owned subsidiary sold Equipment to the parent for a cash price of $72,000. The subsidiary had acquired the equipment at a cost of $84,000 and depreciated the equipment over its 10-year useful life using the straight-line method (no salvage value). The subsidiary had depreciated the equipment for 4 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 6-year useful life.  

Following are financial statements of the parent and its subsidiary for the year ended December 31, 2019. The parent uses the equity method to account for its Equity Investment. The Customer List was amortized as part of the parent's equity method accounting.

	PARENT	SUBSIDIARY
Income statement
Sales	$4,800,000	$720,000
COGS	(3,480,000)	(420,000)
Gross profit	1,320,000	300,000
Income (loss) from subsidiary	74,400	0
Operating expenses	(1,094,400)	(216,000)
Net income	$300,000	$84,000

	PARENT	SUBSIDIARY
Statement of retained earnings
Beginning retained earning	$2,268,000	$168,000
Net income	300,000	84,000
Dividends	(168,000)	(12,000)
Ending retained earnings	$2,400,000	$240,000

	PARENT	SUBSIDIARY
Balance sheet
Assets
Cash	$330,000	$192,000
A/R	420,000	258,000
Inventory	780,000	330,000
PPE, net	3,030,000	618,000
Equity investment	540,000	0
	$5,100,000	$1,398,000
Liabilities and stockholders' equity
A/P	$390,000	$99,600
Other current liabilities	480,000	120,000
Long term liabilities	900,000	780,000
Common stock	330,000	68,400
APIC	600,000	90,000
Retained earnings	2,400,000	240,000
	$5,100,000	1,398,000

a. Prepare the journal entry that the subsidiary made to record the sale of the equipment to the parent, the journal entry that the parent made to record the purchase and the [I] entries for the year of sale.  

b. Compute the remaining portion of the deferred gain on January 1, 2019.

c. Show the computation to yield the $74,000 of Income (loss) from the subsidiary reported by the parent for the year ended December 31, 2019.

d. Compute the Equity Investment balance of $540,000 on December 31, 2019.

e. Prepare the consolidation entries for the year ended December 31, 2019.

f. Prepare the consolidation spreadsheet for the year ended December 31, 2019.

okay and

Answer 1

489,600 ability equity famount Payables / 390,0w (99,600 eta lurreu a liability 4 80,00 120, ovo og term whility gorrono 786, 000 600,000 1681020 330010 6100,00 Common stock 330,000/ 6eyou 68400 600, TD 9010901010 APIC 2400,000 Ratimi I canning ayn 0 a 40070 5,109,00 |13.98,000 1 884 60 16 21660 6,099,60