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Prepare consolidation spreadsheet for intercompany sale of equipment - Equity method Assume a parent company acquired its subsidiary on January 1, 2009, at a purchase price that was $300,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $205,000 was assigned to a Customer List that is being amortized over a 10-year period. The remaining $100,000 was assigned to Goodwill.

In January of 2012, the wholly owned subsidiary sold Equipment to the parent for a cash price of $125,000. The subsidiary had acquired the equipment at a cost of $140,000 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, 2013 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.

Round answers to the nearest whole number.

General Journal
	Description	Debit	Credit
Subsidiary:	Cash	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expensesDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
	Property, pant & equipment	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
Parent:	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expensesDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expensesDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Igain]	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Property, pant & equipment	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Idepr]	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expensesDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, plant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expensesDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00

b. Compute the remaining portion of the deferred gain on January 1, 2013.

Round to nearest whole number. Use negative signs with answers when appropriate.

Gain on sale of equipment	Answer Mark 0.00 out of 1.00
AnswerCashInventoryAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00
Deferred gain at 1/1/13	Answer Mark 0.00 out of 1.00

c. Show the computation to yield the $127,333 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate.

Net income of subsidiary	Answer Mark 0.00 out of 1.00
AAP Depreciation	Answer Mark 0.00 out of 1.00
AnswerCashPPE, netAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleOperating expensesDepreciation of AAP assetEquity incomeCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	Answer Mark 0.00 out of 1.00

d. Compute the Equity Investment balance of $800,166 on December 31, 2013. Hint: Use negative signs with answers when appropriate.

Common stock	Answer Mark 0.00 out of 1.00
APIC	Answer Mark 0.00 out of 1.00
BOY Retained earnings	Answer Mark 0.00 out of 1.00
BOY unamortized AAP	Answer Mark 0.00 out of 1.00
Deferred gain on intercompany sale	Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	Answer Mark 0.00 out of 1.00
Dividends	Answer Mark 0.00 out of 1.00
Equity investment	800,166

e. Prepare the consolidation entries for the year ended December 31, 2013.

Consolidation Worksheet
	Description	Debit	Credit
[C]	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetIncome (loss) from subsidiaryCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Dividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[E]	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	APIC	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	Retained earnings	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[A]	Customer list	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[D]	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Igain]	Equity Investment	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00
[Idepr]	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 0.00 out of 1.00	Answer Mark 1.00 out of 1.00
	AnswerCashProperty, pant & equipmentAccumulated depreciationCustomer listGoodwillGain on sale of equipmentLoss on sale of equipmentEquity investmentNet income of subsidiaryAAP DepreciationDeferred gain on intercompany saleDepreciation expenseDepreciation of AAP assetCommon stockAPICRetained earningsBOY unamortized AAPDividends	Answer Mark 1.00 out of 1.00	Answer Mark 0.00 out of 1.00

f. Prepare the consolidation spreadsheet for the year ended December 31, 2013. Hint: Use negative signs with answers when appropriate.

				Elimination Entries
	Parent	Sub		Dr	Cr		Consolidated
Income statement:
Sales	$10,000,000	$1,001,000					$Answer Mark 0.00 out of 1.00
Cost of goods sold	(7,200,000)	(600,000)					Answer Mark 0.00 out of 1.00
Gross profit	2,800,000	401,000					$Answer Mark 0.00 out of 1.00
Income (loss) from subsidiary	127,333		Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 1.00 out of 1.00
Operating expenses	(1,500,000)	(260,000)	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00
Net income	$1,427,333	$141,000					$Answer Mark 0.00 out of 1.00
Statement of retained earnings:
BOY retained earnings	$5,814,300	$225,000	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00			$Answer Mark 0.00 out of 1.00
Net income	1,427,333	141,000					Answer Mark 0.00 out of 1.00
Dividends	(285,200)	(20,000)			Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00
EOY retained earnings	$6,956,433	$346,000					$Answer Mark 0.00 out of 1.00
Balance sheet:
Assets
Cash	$1,058,100	$323,000					$Answer Mark 0.00 out of 1.00
Accounts receivable	1,750,000	430,000					Answer Mark 0.00 out of 1.00
Inventory	2,600,000	550,000					Answer Mark 0.00 out of 1.00
PPE, net	10,060,000	1,030,000	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00
			Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00
Customer List			Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[D]	Answer Mark 0.00 out of 1.00
Goodwill			Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Equity investment	800,166		Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00	Answer Mark 0.00 out of 1.00	[C]	Answer Mark 1.00 out of 1.00
					Answer Mark 0.00 out of 1.00	[E]
					Answer Mark 0.00 out of 1.00	Answer[C][E][A][D][Igain][Idepr][Iloss]
	$16,268,266	$2,333,000					$Answer Mark 0.00 out of 1.00
Liabilities and stockholders' equity
Accounts payable	$1,010,000	$178,000					$Answer Mark 0.00 out of 1.00
Other current liabilities	1,190,000	230,000					Answer Mark 0.00 out of 1.00
Long-term liabilities	2,500,000	1,300,000					Answer Mark 0.00 out of 1.00
Common stock	553,000	124,000	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
APIC	4,058,833	155,000	Answer[C][E][A][D][Igain][Idepr][Iloss]	Answer Mark 0.00 out of 1.00			Answer Mark 0.00 out of 1.00
Retained earnings	6,956,433	346,000					Answer Mark 0.00 out of 1.00
	$16,268,266	$2,333,000					$Answer Mark 0.00 out of 1.00

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