Question

200 Chapter 41 Consolidated PROBLEMS base price was date, and that was LO 19. Consolidation spreadsheet for continuous cale of inventory-Equity method Assume a parent company acquired a subsidiary on January 1, 2016. The purchas i n excess of the subsidiary's book value of Stockholders' Equity on the acquisition was assigned to the following AAP assets: X Original Amount Original Use Line . $120.000 210.000 150.000 120,000 $600,000 AAP Asset Property, plant and equipment (PPE), net . Customer list... Royalty agreement.. Goodwill.. 20 years 10 years 10 years Indefin parent's equity method been found to be The subsidiary, uli The AAP assets with a definite useful life have been amortized as part of the parent's comit accounting. The Goodwill asset has been tested annually for impairment, and has not been for impaired. Assume the parent company sells inventory to its wholly owned subsidiary. The subsidia mately, sells the inventory to customers outside of the consolidated group. You have compiled the lowing data for the years ending 2018 and 2019: Receivable Inventory Sales Gross Profit Remaining in Unsold Inventory $24,000 $14,400 (Payable) 2019..... 2018 $81,600 $51,600 $32 400 $15,600 The inventory not remaining at the end of the year has been sold to unaffiliated entities outside of the consolidated group. The parent uses the equity method to account for its Equity Investment. The financial statements of the parent and its subsidiary for the year ended December 31, 2019. follow: Parent Subsidiary Parent Subsidiary Income statement: Sales Cost of goods sold .............. Gross profit Income (loss) from subsidiary... Operating expenses..... Net Income $ $5,160,000 (3,600,000) 1,560,000 80,400 (996,000) $ 644,400 $939,600 (564,000) 375,600 Balance sheet: Assets Cash Accounts receivable. Inventory... PPE, net.................. Equity investment... $ 756.000 672,000 1.020,000 4,800,000 1.152.000 $8,400,000 300,000 228,000 276,000 516,000 (243,600) $132,000 $1,320,000 Statement of retained earnings: Beginning retained earnings. ...... Net income............ . . Dividends .......... Ending retained earnings ......... $2,619,600 644,400 (144,000) $3,120,000 $486,000 132,000 (18,000) $600,000 Liabilities and stockholders' equity Accounts payable Other current liabilities .... Long-term liabilities. Common stock ... APIC. Retained earnings .. $ 360,000 480,000 3,000,000 816.000 624,000 3,120,000 $8.400.000 $ 110,400 152,400 313,200 60.000 84,000 600,000 $1,320,000

Answer 1

Income/(Loss) of subsidiary
Net income of Subsidiary		132,000
Recognition of prior year gross profit		14,400
Current year gross profit inventory		(24,000)
Depreciation of assets		(42,000)
		80,400

AAP assets
	Value	useful life	Depreciation	Depreciation 3 years	Value
PPE	120,000	20	6,000	18,000	102,000
Customer list	210,000	10	21,000	63,000	147,000
Royalty agreement	150,000	10	15,000	45,000	105,000
Goodwill	120,000		-		120,000
	600,000		42,000	126,000	474,000

Equity Investment Balance
Retained earninng of subsidiary	486,000
Common stock of subsidiary	60,000
APIC of Subsidiary	84,000
Income from subsidiary	80,400
Gross profit of inventory previous year	(14,400)
Dividend	(18,000)
Unamortized AAP assets	474,000
Equity balance as at 31st December	1,152,000

Consolidation entries
Account title	Debit	Credit
Income from Subsidiary	80,400
Equity investment		80,400
Common Stock (S)	60,000
Retained earning(S)	600,000
Equity investment		660,000
Property, plant & equipment	102,000
Customer list	147,000
Royalty agreement	105,000
Goodwill	120,000
Equity investment		474,000
Operating expenses	42,000
Property, plant & equipment		6,000
Customer list		21,000
Royalty agreement		15,000
Dividend	18,000
Equity investment		18,000
Account Payable	32,400
Account receivable		32,400
Equity Investment	14,400
Cost of good sold		14,400
Sales	81,600
Cost of good sold		81,600
Cost of Good sold	24,000
Inventory		24,000

Consolidated Income Statement
Particulars	Parent	subsidiary	Adjustment	Total
Sales	5,160,000	939,600	(81,600)	6,018,000
Cost of good sold	(3,600,000)	(564,000)	72,000	(4,092,000)
Gross profit	1,560,000	375,600	(9,600)	1,926,000
Income from Subsidiary	80,400	-	(80,400)	-
Operating expenses	(996,000)	(243,600)	(42,000)	(1,281,600)
Net Income	644,400	132,000	(132,000)	644,400

Consolidated Balance sheet
Particulars	Parent	subsidiary	Adjustment	Total
Assets
Cash	756,000	300,000		1,056,000
Acccount receivable	672,000	228,000	(32,400)	867,600
Inventory	1,020,000	276,000	(24,000)	1,272,000
PPE, net	4,800,000	516,000	96,000	5,412,000
Customer list			126,000	126,000
Royalty agreement			90,000	90,000
Goodwill			120,000	120,000
Equity invetsment	1,152,000	-	(1,152,000)	-
	8,400,000	1,320,000	(776,400)	8,943,600
Liabilities and stockholder's equity
Accounts payable	360,000	110,400	(32,400)	438,000
Other current liabilities	480,000	152,400		632,400
long term liabilities	3,000,000	313,200		3,313,200
common stock	816,000	60,000	(60,000)	816,000
APIC	624,000	84,000	(84,000)	624,000
Retained earning	3,120,000	600,000	(600,000)	3,120,000
	8,400,000	1,320,000	(776,400)	8,943,600