Question

c. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet.

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

Consolidation Worksheet
Income statement		Parent		Subsidiary			Debit		Credit			Consolidated
Sales		$3,045,000		$560,000		[Isales]	Answer					Answer
Cost of goods sold		(2,135,000)		(336,000)		[Icogs]	Answer		Answer		[Icogs]	Answer
									Answer		[Isales]
Gross profit		910,000		224,000								Answer
Equity income		10,500		-		[C]	Answer					Answer
Operating expenses		(581,000)		(140,000)		[D]	Answer					Answer
Net income		$339,500		$84,000								Answer
Statement of retained earnings
BOY retained earnings		$1,400,000		$283,500		[E]	Answer		Answer		[ADJ]	Answer
Net income		339,500		84,000								Answer
Dividends		(87,500)		(10,500)					Answer		[C]	Answer
Ending retained earnings		$1,652,000		$357,000								Answer
Balance sheet
Assets
Cash		$455,000		$175,000								Answer
Accounts receivable		392,000		126,000					Answer		[Ipay]	Answer
Inventory		595,000		175,000					Answer		[Icogs]	Answer
Equity investment		560,000		-		[ADJ]	Answer		Answer		[E]	Answer
						[Icogs]	Answer		Answer		[A]
PPE, net		2,800,000		294,000		[A]	Answer		Answer		[D]	Answer
Customer List						[A]	Answer		Answer		[D]	Answer
Royalty Agreement						[A]	Answer		Answer		[D]	Answer
Goodwill						[A]	Answer					Answer
		$4,802,000		$770,000								Answer
Liabilities and equity
Accounts payable		$245,000		$70,000		[Ipay]	Answer					Answer
Other currentliabilities		280,000		87,500								Answer
Long-term liabilities		1,750,000		182,000								Answer
Common stock		490,000		35,000		[E]	Answer					Answer
APIC		385,000		38,500		[E]	Answer					Answer
Retained earnings		1,652,000		357,000			-		-			Answer
		$4,802,000		$770,000			Answer		Answer			Answer

Answer 1

a. Disaggregate and document the activity for the 100% AAP through december 31,2016 AAP Property, Plant & Equipment Customer List Royalty Agreement Goodwill Original Amount original Useful life Amortization per year (A) in years (B) A/B} 140,000 10 14,000 70,000 8,750 56,000 7,000 84,000 Indefinite 8 2019 14,000 $ $ Year Ended December 31, 2017 2018 14,000 $ 8,750 7,000 100% AAP Amortization - Dr (Cr) Property, Plant & Equipment Customer List Royalty Agreement Goodwill Net Amortization $ 2016 14,000 8,750 7,000 14,000 8,750 7,000 7,000 29,750 $ 29,750 $ 29,750 $ 29,750 $ Jan. 1 December 31, Dr (Cr) 2016 2016 2017 Property, Plant & Equipment $ 140,000 $ 126,000 $ 112,000 $ Customer List 70,000 61,250 52,500 Royalty Agreement 56,000 49,000 42,000 Goodwill 84,000 84,000 84,000 Net unamortizated $ 350,000 $ 320,250 290,500 $ *Value at the year ended was Value at the beginning of the year - Amortization during the year 2018 98,000 43,750 35,000 84,000 260,750 2019 84,000 35,000 28,000 84,000 231,000 $

b. Compute the amount of the beginning of year (ADJ) Change in RE(S) thru BOY (283,500 -136,500) Cummulative AAP amort thru BOY (29,750 x 3 years) BOY Upstream IIP ADJ Amount 147,000 89,250 7,350 50,400

Debit Credit Journal Entry Event General Journal [Adj] Equity Investment Retained Earnings - Beginning (Parent) (to record conversion from Cost method to equity method) 50,400 50,400 [C] 10,500 Income (loss) from subsidiary Dividend (to eliminate the inter company dividend) 10,500 BOY Common stock (Subsidiary) BOY APIC (Subsidiary) BOY Retained Earnings (Subsidiary) Equity Investment (to eliminate the stockholders' equity of subsidiary) 35,000 38,500 283,500 357,000 [A] PPE, net Customer List Royalty Agreement Goodwill Equity Investment (to record the unamortized value of AAP Assets as on 01/01/19) 98,000 43,750 35,000 84,000 260,750 29,750 Operating expense PPE, net Customer List Royalty Agreement (to record amortization of the AAP Assets) 14,000 8,750 7,000

[lcogs] 7,350 7,350 Equity Investment Cost of goods sold (to eliminate the unrealized profit at the beginning of year on Intercompany inventory sale) [Isales] 42,000 Sales Cost of goods sold (to eliminate the intercompany sale at 2019) 42,000 [lcogs 5,600 5,600 Cost of goods sold Inventory (to eliminate the unrealized profit at the end on intercompany inventory sale) [lpay] 19,600 Accounts payable Accounts receivable (to eliminate the intercompany due) 19,600

Consolidation Worksheet Subsidiary Debit Parent Credit Consolidated Income statement Sales Cost of goods sold $ $ $ 3,045,000 (2,135,000) 560,000 (sales) (336,000) [lcogs) 42,000 5,600 3,563,000 (2,427,250) 7,350 [lcogs] 42,000 (sales) 1,135,750 Gross Profit Equity income Operating Expense Net Income 910,000 10,500 (581,000) 339,500 224,000 [C] (140,000) [D] 84,000 10,500 29,750 (750,750) 385,000 $ $ $ [E] 283,500 50,400 [ADJ] $ Statement of retained Earnings BOY retained earnings Net Income Dividends Ending retained earnings 1,400,000 339,500 (87,500) 1,652,000 283,500 84,000 (10,500) 357,000 1,450,400 385,000 (87,500) 1,747,900 10,500 [C] $ $ $

$ 175,000 Balance Sheet Cash Accounts Receivable Inventory Equity Investment 455,000 392,000 595,000 560,000 126,000 175,000 630,000 498,400 764,400 (ADJ] Ilcogs 19,600 5,600 357,000 260,750 14,000 8,750 7,000 [lpay] [lcogs) (E) (A) [D] [D] [D] 2,800,000 294,000 [Α] 50,400 7,350 98,000 43,750 35,000 84,000 T [A] PPE,net Customer list Royalty Agreement Goodwill 3,178,000 35,000 28,000 84,000 [A] [A] $ 4,802,000 $ 770,000 5,217,800 $ $ (pay] 19,600 Liabilites and equity Accounts Payable Other current liabilities Long-term liabilities Common stock APIC Retained earnings 245,000 280,000 1,750,000 490,000 385,000 1,652,000 4,802,000 70,000 87,500 182,000 35,000 38,500 357,000 770,000 [E] [E] 35,000 38,500 295,400 367,500 1,932,000 490,000 385,000 1,747,900 5,217,800 $ $ $ 782,950 $ 782,950