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.

Financial statements of the parent and its subsidiary for the year ended December 31, 2019 follow in part f. below. 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.

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.

Debit Credit 120,000 X > 52,500 x 140,000 x 37,500 x 0 Journal Entries Description Subsidiary: Cash Accumulated depreciation

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

c. Show the computation to yield the $74,400 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2019.

Note: Use a negative sign with an answer to indicate a reduction in the computation.

141,000 X (20,500) X Net income of subsidiary AAP Depreciation Deferred gain on intercompany sale Income (loss) from subsidia

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

Note: Use a negative sign with an answer to indicate a reduction in the computation.

Common stock APIC EOY Retained earnings EOY Unamortized AAP Gain on intercompany sale Equity investment 124000 x 155,000 X 22

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

Debit Credit 0X 0 0 OX ► > ох > OX 0 0X 0 OX 0 0 OX Consolidation Worksheet Description [C] Income (loss) from subsidiary Div

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

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

Elimination Entries Dr Cr Consolidated $ ох Ox Parent Sub $4,800,000 $720,000 (3,480,000) (420,000) 1,320,000 300,000 74,400

Every word from the question is posted. Not sure how it isn't clear. Please explain what you are referring to. Thanks.

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Answer #1

Calculation of Amortization of AAP Assets Assets Initial Value life [A] [B] $ 132,000 90,000 $ 222,000 Amortization per year

a. No. Debit Credit Journal Entry to record the transactions Account titles and Explanation 1 Entry made by Subsidiary Cash A

b. Deferred gain at January 1, 2019 $ Gain on sale of equipment as on 01/01/2018 Less:Confirmed Gain of 2018 Deferred gain at

E. Transaction [C] Debit $ Consolidation Entries Account titles and explanation Income (loss) from subsidiary Dividends Equit

f. Consolidation Spreadsheet Adjustments Debit Credit Parent Subsidiary Consolidated Totals $ Income Statement Sales Cost of

$ $ Balance Sheet Cash Accounts receivable Inventory PPE, Net 330,000 $ 420,000 780,000 3,030,000 522,000 678,000 1,110,000 3

.

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