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Prepare consolidation spreadsheet for intercompany sale of equipmentCost method Assume a parent company acquired a subsidiary on January 1, 2015 for $576,000. The purchase price was $207,000 in excess of the book value of the subsidiarys Stockholders Equity on the acquisition date. On the acquisition date, the subsidiarys stockholders equity was comprised of $270,000 of nopar common stock and $99,000 of retained earnings. The Acquisition Accounting Premium (AAP) was assigned as follows: an increase of $9,000 in accounts receivable that were entirely collected during the year after acquisition, an increase of $45,000 for property, plant and equipment that has 10 years of remaining useful life, $72,000 for an unrecorded patent with an 8-year remaining life and $81,000 for goodwill. All amortizable components of the AAP are amortized using the straight-line method.

On January 1, 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The parent had acquired the equipment at a cost of $84,600 and depreciated the equipment over its 12-year useful life using the straight-line method (no salvage value). The parent had depreciated the equipment for 2 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life

Following are financial statements of the parent and its subsidiary as of December 31, 2019. The parent uses the cost method of pre-consolidation investment bookkeeping.

				Parent		Subsidiary								Parent		Subsidiary
Income statement									Balance sheet
Sales				$900,000		$414,000			Assets
Cost of goods sold				(495,000)		(252,000)			Cash					$81,000		$54,000
Gross profit				405,000		162,000			Accounts receivable					108,000		81,000
Deprec. & amort. Expense				(27,000)		(18,000)			Inventory					252,000		126,000
Operating expenses				(270,000)		(72,000)			Equity investment					576,000		-
Interest expense				(13,500)		(4,500)			Property, plant & equipment					306,000		216,000
Total expenses				(310,500)		(94,500)			Other assets					117,000		198,000
Income (loss) from subsidiary				31,500		-			Total assets					$1,440,000		$675,000
Net income				$126,000		$67,500			Liabilities and stockholders' equity
									Accounts payable					$225,000		$48,600
Statement of retained earnings									Accrued liabilities					22,500		41,400
BOY retained earnings				$495,000		$225,000			Notes payable					135,000		54,000
Net income				126,000		67,500			Common stock					540,000		270,000
Dividends				(103,500)		(31,500)			Retained earnings					517,500		261,000
Ending retained earnings				$517,500		$261,000			Total liabilities and equity					$1,440,000		$675,000

d. Prior to preparing consolidated financial statements, compute the amount of Equity investment the parent would have reported on December 31, 2019 assuming the parent applied the equity method instead of the cost method of pre-consolidation bookkeeping.

Do not use negative signs with your answers below.

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

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

Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses) and Dividends.

$ 270000 261000 Equity Investment ("as if" Equity Method) Common Stock (s) @ EOY Retained Earnings (S) @ EOY Add: Unamortized AAP @ EOY Deduct: Unconfirmed gain @ EOY - EOY Investment ("as if" equity method) 126000 X 0 X $ Credit Debit 0 x 0 0 OX [C] 0 . 31500 X 0 31500 X 0 270000 x 225000 x 0 0 x > 0 0 > 0 OX 0 0 x 0 0 x 0 0 > 0 OX 0 0 x 0 0 x

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