Question

Parent Subsidiary Subsidiary Balance sheet $800,000 Assets (480,000) Cash 320,000 Accounts receivable Parent Income statement Sales $4,350,000 Cost of goods sold (3,050,000) Gross profit 1,300,000 Income (loss) from subsidiary 15,000 Operating expenses (830,000) Net income $485,000 Statement of retained earnings BOY retained earnings | $2,000,000 Net income 485,000 Dividends (125,000) Ending retained earnings $2,360,000 - Inventory (200,000) Equity investment $120,000 Property, plant & equipment $650,000 $310,000 560,000 180,000 850,000 250,000 980,000 4,000,000 420,000 $7,040,000 $1,160,000 $465,000 Liabilities and stockholders' equity 120,000 Accounts payable (15,000) Other current liabilities $570,000 Long-term liabilities Common stock APIC Retained earnings $350,000 $100,000 400,000 125,000 2,500,000 260,000 700,000 50,000 730,000 55,000 2,360,000 570,000 $7,040,000 $1,160,000 a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016. Year ended December 31, 100% AAP Amortization - Dr (Cr) 2013 2014 2015 2016 Property, plant and equipment (PPE), net $ 0 $ 0 $ 0 $ Customer List 0 0 0 0 Royalty Agreement 0 0 0 0 Goodwill 0 0 0 Net amortization 0 $ 0 $ 0 $ 0 Jan. 1 2013 2013 2016 $ 0 $ 0 0 0 100% Unamortized AAP - Dr (Cr) Property, plant and equipment (PPE), net $ Customer List Royalty Agreement Goodwill Net unamortized $ 0 $ 0 0 0 0 $ December 31, 2014 2015 0 $ 0 0 0 0 $ 0 0 0 $ 0 $

Use negative signs with answers in the Consolidated column for Cost of goods sold, Operating expenses and Dividends.

Answer 1

AAP a. Disaggregate and document the activity for the 100% AAP through december 31, 2016 Original Amount Original Useful Amortization (A) life in years (B) per year {A/B} Property, Plant & Equipment 260,000 10 26,000 Customer List 160,000 8 20,000 Royalty Agreement 140,000 17,500 Goodwill 120,000 Indefinite 100% AAP Amortization - Dr (Cr) Property, Plant & Equipment Customer List Royalty Agreement Goodwill Net Amortization 2013 26,000 20,000 17,500 Year Ended December 31, 2014) 2015 26,000 26,000 20,000 20,000 17,500 17,500 2016 26,000 20,000 17,500 63,500 63,500 63,500 63,500 Jan.1 December 31, 100% Unamortized AAP - Dr (Cr) 2013 2013 2014 Property, Plant & Equipment 260,000 234,000 208,000 Customer List 160,000 140,000 120,000 Royalty Agreement 140,000 122,500 105,000 Goodwill 120,000 120,000 120,000 Net unamortizated 680,000 616,500 553,000 *Value at the year ended was Value at the beginning of the year - Amortization during the year 2015 182,000 100,000 87,500 120,000 489,500 2016 156,000 80,000 70,000 120,000 426,000 b. Change in RE(S) thru BOY (465000-195000) 270,000 Cummulative AAP amort thru BOY (63,500 x 3) 190,500 BOY Upstream IIP 13,500 ADJ Amount 66,000 Notes: Cummulative AAP amortization was 63,500 per year for 3 years i.e. from 2013 to 2015

Debit Credit Journal Entry Event General Journal [Adj] Equity Investment BOY Retained earnings (Parent) (to record conversion from Cost method to equity method) 66,000 66,000 [C] 15,000 Equity Income Dividend (to eliminate the inter company dividend) 15,000 [E] BOY Common stock (Subsidiary) BOY APIC (Subsidiary) BOY Retained earnings (Subsidiary) Equity Investment |(to eliminate the stockholders' equity of subsidiary) 50,000 55,000 465,000 570,000 [A] PPE, net Customer List Royalty Agreement Goodwill Equity Investment (to record the unamortized value of AAP Assets as on 01/01/16) 182,000 100,000 87,500 120,000 489,500 [D] 63,500 Operating expense PPE.net Customer list Royalty Agreement (to record amortization of the AAP Assets) 26,000 20,000 17,500

[Icogs] 13,500 Equity Investment Cost of goods sold (to recognize prior year profit on intercompany sales) 13,500 [Isales] 43,000 Sales Cost of goods sold |(to eliminate the intercompany sale at 2019) 43,000 [Icogs] 11,000 Cost of goods sold Inventory (to defer current period profit on intercompany sale) 11,000 [lpay] 31,000 Accounts payable Accounts receivable |(to eliminate the intercompany due) 31,000

Consolidation Worksheet Subsidiary Debit Parent Credit Consolidated Income statement Sales Cost of goods sold 4,350,000 (3,050,000) 800,000 [Isales] (480,000) [Icogs] 43,000 11,000 5,107,000 (3,484,500) 13,500 43,000 [Icogs] [Isales] 1,622,500 Gross Profit Equity income Operating Expense Net Income 1,300,000 15,000 (830,000) 485,000 320,000 [C] (200,000) [D] 120,000 15,000 63,500 (1,093,500) 529,000 [E] 465,000 66,000 (ADJ] Statement of retained Earnings BOY retained earnings Net Income Dividends Ending retained earnings 2,000,000 485,000 (125,000) 2,360,000 465,000 120,000 (15,000) 570,000 2,066,000 529,000 (125,000) 2,470,000 15,000 [C] Balance Sheet Cash Accounts receivable Inventory Equity Investment 650,000 560,000 850,000 980,000 960,000 709,000 1,089,000 310,000 180,000 250,000 (ADJ] [cogs] 420,000 [A] - [A] 31,000 (Ipay] 11,000 [Icogs] 570,000 [E] 489,500 [A] 26,000 [D] 20,000 [D] 17,500 [D] 4,000,000 66,000 13,500 182,000 100,000 87,500 120,000 PPE,net Customer List Royalty Agreement Goodwill [A] [A] 4,576,000 80,000 70,000 120,000 7,604,000 7,040,000 1,160,000

31,000 Liabilites and equity Accounts Payable Other current liabilities Long-term liabilities Common stock APIC Retained earnings 350,000 400,000 2,500,000 700,000 730,000 2,360,000 7,040,000 100,000 (pay] 125,000 260,000 50,000 [E] 55,000 (E] 570,000 1,160,000 50,000 55,000 419,000 525,000 2,760,000 700,000 730,000 2,470,000 7,604,000 1,302,500 1,302,500