Question

Subsidiary 46. Prepare consolidation spreadsheet for intercompany sale of land-Equity method LOS Assume a parent company acquired its subsidiary on January 1, 2017, at a purchase price that was $270,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. X of that excess, $180,000 was assigned to an unrecorded Patent owned by the subsidiary that is being amortized over a 10-year period. The [A] Patent asset has been amortized as part of the parent's equity method accounting. The remaining $90,000 was assigned to Goodwill. In 2018, the wholly owned sub- sidiary sold Land to the parent for $108,000. The Land was reported on the subsidiary's balance sheet for $72,000 on the date of sale. The parent uses the equity method to account for its Equity Investment. Following are financial statements of the parent and its subsidiary for the year ended December 31. 2019: Parent Subsidiary Parent Income statement: Balance sheet: Sales $2,700,000 $342,000 Assets Cost of goods sold (1.890,000) (198,000) Cash. $ 234,000 Gross profit 810,000 144,000 Accounts receivable 342,000 Inventory 522,000 Income (loss) from subsidiary... 45,000 PPE, net 1.800,000 Operating expenses (513,000) (81,000) Equity Investment.. 477,000 Net income.com $ 342,000 $ 63,000 $3,375,000 Statement of retained earnings: Liabilities and stockholders' equity Accounts payable Boginning retained earnings... $ 648,000 $177,300 $ 201,600 Net Income 342,000 63,000 Other current liabilities 248,400 Dividends (90,000) (15,300) Long-term liabilities 1,350,000 Common stock 360.000 Ending retained earnings $ 900,000 $225,000 APIC. 315.000 Retained earnings 900,000 $3.375,000 0 $108,000 72.000 135,000 193,500 0 $508,500 $ 45,000 54,000 112,500 27.000 45.000 225.000 $508,500 d. Show the computation to yield the $45,000 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2019. b. Show the computation to yield the $477.000 Equity Investment account balance reported by the parent on December 31, 2019. Prepare the consolidation entries for the year ended December 31, 2019. d. Prepare the consolidation spreadsheet for the year ended December 31, 2019, c.

Answer 1

Activity for the 100% AAP through december 31, 2016

AAP	Original Amount (A)	Original Useful Life in years (B)	Amortization per year (A/B)
Patent	180000	10	18000
Goodwill	90000	Indefinite	-

	Year Ended Decemeber 31
100% AAP Amortization - Dr(Cr)	20X1	20X2	20X3
Patent	18000	18000	18000
Goodwill	-	-	-
Net Amortization	18000	18000	18000

	Jan.1	December 31,
100% Unamortized AAP - Dr(Cr)	20X1	20X1	20X2	20X3
Patent	180000	162000	144000	126000
Goodwill	90000	90000	90000	90000
Net Unamortized	270000	252000	234000	216000

Value at the year ended was Value at the beginning of the year - Amortization during the year

Computation of Gain(Loss) on sale of Subsidiary in 20X8

Trandfer price of Land 108000

Less: Book Value 72000

Gain on Sales of Land 36000

a) Computation of Income(loss) from Subsidiary

Net income of Subsidiary	63000
AAP Depreciation	18000
Income(loss) from Subsidiary	45000

b) Computation of Equity Investment

Common Stock	27000
APIC	45000
BOY Retained Earnings	177300
BOY Unamortized AAP	234000
Gain on Intercompany sale of land	(36000)
Income(loss) from Subsidiary	45000
Dividends	(15300)
Equity Investment	477000

c) Consolidation entries for the year ended December 31,2019

Consolidation Worksheet
	Description	Debit	Credit
A)	Patent	144000
	Goodwill	90000
	Equity Investment		234000
	(To record unamortized AAP asssets as on 1/1/20X6 by eliminating the equity investment
B)	Equity investment	36000
	PPE net		36000
	(To recognise prior year profit on intercompany land sales)
C)	Income(loss) from subsidiary	45000
	Dividends		15300
	Equity investment		29700
	(To record elimination of equity investment from the income(loss) and dividend of subsidiary)
D)	Operating Expense	18000
	Patent		18000
	(To record amortization during the year on AAP assests)
E)	Common Stock	27000
	APIC	45000
	BOY Retained Earnings	177300
	Equity Investment		249300
	(To record elimination of equity investment from common stock and additional paid in capital and BOY Retained Earnings)

d)

Consolidation Worksheet
	Parent	Subsidiary		Debit	Credit		Consolidated
Income Statement
Sales	2700000	342000					3042000
Cost of goods sold	(1890000)	(198000)					(2088000)
Gross Profit	810000	144000					954000
Equity Income	45000	0	(C)	45000			-
Operating Expense	(513000)	(81000)	(D)	18000			(612000)
Net Income	342000	63000					342000
Statement of Retained Earnings
Beginning Retained Earnings	648000	177300	(E)	177300			648000
Net Income	342000	63000					342000
Dividends	(90000)	(15300)			15300	(C)	(90000)
Ending Retained Earnings	900000	225000					900000
Balance Sheet
Cash	234000	108000					342000
Accounts Receivable	342000	72000					414000
Inventory	522000	135000					657000
PPE, net	1800000	193500			36000	(B)	1957500
Patent	-	-	(A)	144000	18000	(D)	126000
Goodwill	-	-	(A)	90000			90000
Equity Investment	477000		(B)	36000	29700	(C)	-
					249300	(E)
					234000	(A)
							3586500
Liabilities and Equity
Accounts Payable	201600	45000					246600
Other current liabilities	248400	54000					302400
Long term liabilties	1350000	112500					1462500
Commom Stock	360000	27000	(E)	27000			360000
APIC	315000	45000	(E)	45000			315000
Retained Earnings	900000	225000		-	-		900000
							3586500