1. Parent acquired Subsidiary on January 1, 2009 at a price $150,000 in excess of book value. Of that excess, $100,000 was allocated to an unrecorded Patent with a 10-year life, with the remainder to goodwill. In 2010, Subsidiary sold to Parent land having a book value of $70,000 for a total price of $100,000.
Financial statements of the two companies for the year ended December 31, 2011 are presented below.
|
|
Parent
|
Subsidiary
|
|
Sales revenue
|
$1,500,000
|
$187,500
|
|
Cost of goods sold
|
(1,050,000)
|
(112,500)
|
|
Gross profit
|
450,000
|
75,000
|
|
Operating expenses
|
(285,000)
|
(48,750)
|
|
Equity income
|
16,250
|
_
|
|
Net Income
|
mce_markernbsp; 181,250
|
mce_markernbsp; 26,250
|
|
|
|
|
|
Retained Earnings, 1/1/11
|
mce_markernbsp; 753,600
|
mce_markernbsp; 96,875
|
|
Net income
|
181,250
|
26,250
|
|
Dividends
|
( 41,688)
|
( 3,412)
|
|
Retained Earnings, 12/31/11
|
mce_markernbsp; 893,162
|
$119,713
|
|
|
|
|
|
Cash and receivables
|
mce_markernbsp; 342,783
|
$104,106
|
|
Inventory
|
291,000
|
55,875
|
|
Equity investment
|
237,838
|
|
|
Property, plant & equipment (Net)
|
1,399,800
|
103,375
|
|
Total Assets
|
$2,271,421
|
$263,356
|
|
|
|
|
|
Accounts payable
|
mce_markernbsp; 112,350
|
mce_markernbsp; 22,380
|
|
Accrued liabilities
|
138,408
|
30,638
|
|
Notes payable
|
750,000
|
62,500
|
|
Common stock
|
245,250
|
12,500
|
|
Additional paid-in capital
|
132,251
|
15,625
|
|
Retained Earnings, 12/31/11
|
893,162
|
119,713
|
|
Total Liabilities and Equities
|
$2,271,421
|
$263,356
|
Required:
a. Prepare a schedule showing the computation of Equity Income on Parent's books for 2011.
b. Prepare a schedule showing the computation of Equity Investment on Parent's books at December 31, 2011.
c. Prepare the consolidation entries for 2011.
2. Parent acquired Subsidiary on January 1, 2011 at a price $150,000 in excess of book value. Of that excess, $100,000 was allocated to an unrecorded Customer List with a 10-year life, with the remainder to Goodwill.
On January 2014, Subsidiary sold equipment to Parent for $60,000. The equipment had a cost of $70,000 and accumulated depreciation of $28,000. The remaining life of the equipment was estimated at 6 years. Financial statements for the two companies for the year ended December 31, 2015 are presented below.
|
|
Parent
|
Subsidiary
|
|
Sales revenue
|
$5,000,000
|
mce_markernbsp; 500,000
|
|
Cost of goods sold
|
(3,600,000)
|
(300,000)
|
|
Gross profit
|
1,400,000
|
200,000
|
|
Operating expenses
|
(750,000)
|
(130,000)
|
|
Equity income
|
63,000
|
_
|
|
Net Income
|
mce_markernbsp; 713,000
|
mce_markernbsp; 70,000
|
|
|
|
|
|
Retained Earnings, 1/1/15
|
$2,922,150
|
mce_markernbsp; 112,500
|
|
Net income
|
713,000
|
70,000
|
|
Dividends
|
(142,000)
|
(10,000)
|
|
Retained Earnings, 12/31/15
|
$3,493,150
|
mce_markernbsp; 172,500
|
|
|
|
|
|
Cash and receivables
|
$1,404,650
|
mce_markernbsp; 376,000
|
|
Inventory
|
1,300,000
|
275,000
|
|
Equity investment
|
350,000
|
|
|
Property, plant & equipment (Net)
|
5,030,000
|
515,000
|
|
Total Assets
|
$8,084,650
|
$1,166,000
|
|
|
|
|
|
Accounts payable
|
mce_markernbsp; 505,000
|
mce_markernbsp; 89,000
|
|
Accrued liabilities
|
595,000
|
115,000
|
|
Notes payable
|
1,250,000
|
650,000
|
|
Common stock
|
211,500
|
62,000
|
|
Additional paid-in capital
|
2,030,000
|
77,500
|
|
Retained Earnings, 12/31/15
|
3,493,150
|
172,500
|
|
Total Liabilities and Equities
|
$8,084,650
|
$1,166,000
|
Required:
a. Prepare the journal entries on the books of Parent and Subsidiary to record the equipment sale.
b. Compute the amount of unrealized gain at January 1, 2015.
c. Prepare entries required under the equity method on Parent's books for 2015.
d. Prepare the consolidation entries for 2015.