Question

Consolidation spreadsheet for continuous sale of inventory - Equity method Assume that a parent company acquired a subsidiary on January 1, 2010. The purchase price was 500,000 million in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date and that excess was assigned to the following AAP assets Original Original Useful Amount Life (years) AAP Asset Property, plant and equipment (PPE), net Customer list Royalty agreement Goodwill $100,000 185,000 115,000 100,000 $500,000 20 indefinite The AAP assets with a definite useful life have been amortized as part of the parent's equity method accounting. The Goodwill asset has been tested annually for impairment, and has not been found to be impaired Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013: Gross Profit Remaining Inventory in Unsold Receivab Sales Inventory (Payable) 19,180 $27,000 ,700 $12,397 $13,037 2013 $68,000 2012 $43, 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, 2013, follow in The financial statements of the parent and its subsidiary for the year ended December 31, 2013, follow in part d. below. a. Show the computation to yield the pre-consolidation $71,837 Income (loss) from subsidiary reported by the parent during 2013. Hint: Use negative signs with answers when appropriate. Plus: Less: Income (loss) from subsidiary b. Show the computation to yield the Equity Investment balance of $962,189 reported by the parent at December 31, 2013. Hint: Use negative signs with answers when appropriate. Common stock APIC Retained earnings BOY unamortized AAP BOY deferred profit Income (loss) from subsidiary Dividends Customer list Royalty agreement PPE net Customer list [lcogs isales] [lcogs] [ipay] [lpay] d. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate Elimination Entries Sub Parent Consolidated Income statement: $787,000 [Isales] Sales $4,370,000 (469,800) [Icogs] (3,059,000) Cost of goods sold [lcogs] lsales] Gross profit 317,200 1,311,000 Income (loss) from subsidiary 71,837 IC] 203,580) [D] (830,300) Operating expenses $552,537 $113,620 Net income Statement of retained earnings 404,550 E] BOY retained earnings $2,195,488 113,620 Net income 552,537 (130,164) (14,251) Dividends ID) Royalty agreement Goodwill IC] Equity investment [lcogs] Liabilities and stockholders' equity $93,459 Ipayl Accounts payable $327,313 Other current liabilities 403,228 127,943 Long-term liabilities 2,500,000 261,000 714,495 52,200 [E] Common stock 535,155 65,250 E] APIC 2,617,861 503,919 Retained earnings $7,098,052 $1,103,771

Answer 1

oluttons- AcHv1y for the 100% nAP thiough december 31,2016 A PP 119) open S ,00 O 20 1 0 Costo mun ust 12 SOO Royaty Prareement- Indlehinthe 100,006 Govduorlt Yeaγ Ended December 3' 2016 S,000 17,S00 Dac 5,000 pment 1750 o Custome ut a,so 0 14,500 &,S0o Iba,sro reement. 3S,000 3s,000 3 S,000 3S,000 Property, Plantt Equipment100,0004s,o0Oab,oco&S,000&6,00o 'a 5,000 | '12,soo loo,000 | 87,suo | 0o,00 0 o 7s,00 a 0,00o00,000 l Agreement- Royalty unamotyated » Value at the Year ended was value at the beatnnhna of Scänned with

ConsolfdaHan Fov the yeay endledl Decembe» 31,2 0l6 ons* lid- au-e [ncome starement Sales Cost of aoods so 46 1,$8 I,3,000313,200 ,67417 67,837 c682» 11,068,8&O su8,s37 (o,620 Ner Income Sug,S3? Starement of ne- tainedl Earrr? Ner Income Diridendl, Endins retatned (1266u,2s1) 21617,861 ,61,8699,a13 Bal ance Sheet- 903,92も Soi6 39S 3,087 | 559,360|18),6S6 8υγ,7 So I a 33,334 Cas h count steceiv. able 5,000 | DJ | 4,589,92 pRmet nner

Royalty igiecncn o o000 0,00 o ,82 1,099, ccounts payable | 323313 | q3,459 | Cray] | 27,200 Other cuene la- 343,s72 2A43 61,000 マ,761 ,ooo th es 귀4,495|マ竹2001 S2,200 ) 187,200 Sro čte Common $30,9S a ,6 19 ,86 Retai neol eaménaļa,617,861|E8a , alg ntes Explanathon. Csale to eliminate the fntvacompamansee durng the year «ol6 te,6 oo fom Equity mvestment vohich wa eat yed tn aol6ve, [cogi s to eliminate the aolb de fe med inventura Prof仆 12, Sa7 Scanned with ahe8 yet to be Teaiyed

c s to etiminare the eau earnings anol share n dividends declareal by the Subsloliaa ts to elimtnare the SubsidliarStdoldes's eaufty C.DD9s to aecord the amoriyation eapenses of Af pan ers dur cauculahon of Envestment Common Stoce of Subrdiar Apic of Subsiouasy Boy Rerauned Eaninas of SubStdtat Unamosed value otAAP the yeai 2oib S 2, 2/b 05,2so 122, SUD Reyalty hjveement 0 o 100! 000イー67 | S37 12 02 S9 Divi dendn of Susidoi^ 2015 Deferred Inventory moh