Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value....
Parent acquired Subsidiary on January 1, 2020 at a price
$450,000 in excess of book value. Of that excess, $350,000 was
allocated to an unrecorded patent with a 10-year life, with the
remainder to goodwill. The Subsidiary’s retained earnings balance
on the date of acquisition was $1,379,650. The Parent uses the cost
method to account for its investment in the Subsidiary. In 2021,
Subsidiary sold to Parent land having a book value of $90,000 for a
total price of $244,000.
Financial statements of the two companies for the year ended
December 31, 2022 are presented below.
| Accounts | Parent | Subsidiary | |
| Sales Revenue | 7,500,000.00 | 2,450,000.00 | |
| Cost of Goods Sold | (5,930,000.00) | (1,950,000.00) | |
| Gross Profit | 1,570,000.00 | 500,000.00 | |
| Operating Expenses | (1,375,000.00) | (286,000.00) | |
| Income (loss) from Subsidiary | 176,000.00 | - | |
| Net Income | 371,000.00 | 214,000.00 | |
| Retained Earnings, 1/1/22 | 4,045,000.00 | 1,750,000.00 | |
| Net Income | 371,000.00 | 214,000.00 | |
| Dividends | (85,000.00) | (176,000.00) | |
| Retained Earnings, 12/31/22 | 4,331,000.00 | 1,788,000.00 | |
| Cash & Receivables | 1,750,000.00 | 1,145,600.00 | |
| Inventory | 958,000.00 | 758,000.00 | |
| Investment in Subsidiary | 2,412,150.00 | - | |
| PP&E (Net) | 4,713,850.00 | 1,116,590.00 | |
| Total Assets | 9,834,000.00 | 3,020,190.00 | |
| Accounts Payable | 980,000.00 | 225,000.00 | |
| Accrued Liabilities | 142,800.00 | 376,500.00 | |
| Notes Payable | 1,010,200.00 | 51,190.00 | |
| Common Stock | 1,792,000.00 | 158,000.00 | |
| Additional Paid-In Capital | 1,578,000.00 | 421,500.00 | |
| Retained Earnings, 12/31/22 | 4,331,000.00 | 1,788,000.00 | |
| Total Liabilities & Equities | 9,834,000.00 | 3,020,190.00 | |
Prepare a consolidated spreadsheet.
Homework Answers
| Consolidated Financial Statements for the year ended December 31,2022 | |||||
| Consolidation Worksheet | |||||
| Elimination | |||||
| Accounts | Parent | Subsidiary | Parent | Subsidiary | Combined |
| Sales Revenue | $7,500,000.00 | $2,450,000.00 | $9,950,000.00 | ||
| Cost of Goods Sold | (5,930,000.00) | (1,950,000.00) | (7,880,000.00) | ||
| Gross Profit | 1,570,000.00 | 500,000.00 | 2,070,000.00 | ||
| Operating Expenses | (1,375,000.00) | (286,000.00) | (1,661,000.00) | ||
| Income from subsidiary | 176,000.00 | (176,000.00) | - | ||
| Net Income | 371,000.00 | 214,000.00 | (176,000.00) | - | 409,000.00 |
| Elimination | |||||
| Accounts | Parent | Subsidiary | Parent | Subsidiary | Combined |
| Retained Earnings,1/1/22 | $4,045,000.00 | $1,750,000.00 | $5,795,000.00 | ||
| Net Income | 371,000.00 | 214,000.00 | (176,000.00) | 409,000.00 | |
| Dividends | (85,000.00) | (176,000.00) | 176,000.00 | (85,000.00) | |
| Amortization of Patents | (70,000.00) | (70,000.00) | |||
| Profit on Sale of Land | (154,000.00) | (154,000.00) | |||
| Retained Earnings at the time of acquisition | (1,379,650.00) | (1,379,650.00) | |||
| Retained Earnings,12/31/22 | 4,331,000.00 | 1,788,000.00 | (246,000.00) | (1,357,650.00) | 4,515,350.00 |
| Elimination | |||||
| Accounts | Parent | Subsidiary | Parent | Subsidiary | Combined |
| Cash & Receivables | $1,750,000.00 | $1,145,600.00 | $2,895,600.00 | ||
| Inventory | 958,000.00 | 758,000.00 | 1,716,000.00 | ||
| Investment in Subsidiary | 2,412,150.00 | (2,412,150.00) | - | ||
| Goodwill | 103,000.00 | 103,000.00 | |||
| Patents | 280,000.00 | 280,000.00 | |||
| PP&E (Net) | 4,713,850.00 | 1,116,590.00 | (154,000.00) | 5,676,440.00 | |
| Total Assets | 9,834,000.00 | 3,020,190.00 | (2,183,150.00) | - | 10,671,040.00 |
| Accounts Payable | $980,000.00 | $225,000.00 | $1,205,000.00 | ||
| Accrued Liabilities | 142,800.00 | 376,500.00 | 519,300.00 | ||
| Notes Payable | 1,010,200.00 | 51,190.00 | 1,061,390.00 | ||
| Common Stock | 1,792,000.00 | 158,000.00 | (158,000.00) | 1,792,000.00 | |
| Additional Paid in Capital | 1,578,000.00 | 421,500.00 | (421,500.00) | 1,578,000.00 | |
| Retained Earnings | 4,331,000.00 | 1,788,000.00 | (246,000.00) | (1,357,650.00) | 4,515,350.00 |
| Total Liabilities & Equity | 9,834,000.00 | 3,020,190.00 | (246,000.00) | (1,937,150.00) | 10,671,040.00 |
| Computation of Cost of acquisition | |||||
| Net Assets at the time of acquisition | |||||
| Common Stock | $158,000.00 | ||||
| Additional Paid in Capital | 421,500.00 | ||||
| Retained Earnings | 1,379,650.00 | ||||
| Total Net Assets | 1,959,150.00 | ||||
| Cost of acquisition | $2,412,150.00 | ||||
| Excess consideration paid | 453,000.00 | ||||
| Treatment of excess consideration | |||||
| Patents | $350,000.00 | ||||
| Recorded Goodwill | 100,000.00 | ||||
| Unrecorded Goodwill | 3,000.00 | ||||
| 453,000.00 | |||||
| Value of PP& E | |||||
| Value of PP&E of Parent | $4,713,850.00 | ||||
| Value of PP&E of Subsidiary | 1,116,590.00 | ||||
| Total | 5,830,440.00 | ||||
| Less: Excess of book value over transfer price | 154,000.00 | ||||
| Consolidated Value of PP&E | 5,676,440.00 | ||||
| Transfer Price of Land | $244,000.00 | ||||
| Book Value of Land | (90,000.00) | ||||
| Excess of book value over transfer price | 154,000.00 | ||||
| Amortization of Patents | |||||
| Value of Patents | $350,000.00 | ||||
| Useful life in years | 10.00 | ||||
| Annual Amortization | 35,000.00 | ||||
| Amortization for two years | 70,000.00 | ||||
| Note 1 - Since,a part of the excess consideration has been allocated to unrecorded patents,the value of the patents would appear | |||||
| only in the consolidated statements and not in individual financial statements of the parent and the subsidiary. As a result,the | |||||
| amortization expenses would also appear in the consolidated financial statements.The amortization expenses would be | |||||
| adjusted against the retained earnings of the consolidated company and the patents would be shown at the Net value. | |||||
| Note-2 - Both the recorded and unrecorded value of goodwill would be shown under the adjustments at the time of consolidation | |||||
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