1.Prepare consolidation spreadsheet for continuous sale of inventory—Cost method
A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $800,000. On this date, the balances of the subsidiary’s stockholders’ equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets:

					Original Amount	Original Useful Life
Property, plant & equipment					$200,000	10	years
Customer list					100,000	8	years
Royalty agreement					80,000	8	years
Goodwill					120,000	Indefinite

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 2015 and 2016:

	Intercompany Sales	Gross Profit Remaining in Unsold Inventory	Receivable (Payable)
2016	$40,000	$8,000	$28,000
2015	$60,000	$10,500	$15,000

The inventory not remaining at the end of a given year is sold to unaffiliated entities outside of the consolidated group during the next year. The parent uses the cost method of pre-consolidation Equity Investment bookkeeping.

The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow:

				Parent		Subsidiary								Parent		Subsidiary
Income statement									Balance sheet
Sales				$4,350,000		$800,000			Assets
Cost of goods sold				(3,050,000)		(480,000)			Cash					$650,000		$250,000
Gross profit				1,300,000		320,000			Accounts receivable					560,000		180,000
Income (loss) from subsidiary				15,000		-			Inventory					850,000		250,000
Operating expenses				(830,000)		(200,000)			Equity investment					800,000		-
Net income				$485,000		$120,000			Property, plant & equipment					4,000,000		420,000
Statement of retained earnings														$6,860,000		$1,100,000
BOY retained earnings				$2,000,000		$405,000			Liabilities and stockholders' equity
Net income				485,000		120,000			Accounts payable					$350,000		$100,000
Dividends				(125,000)		(15,000)			Other current liabilities					400,000		125,000
Ending retained earnings				$2,360,000		$510,000			Long-term liabilities					2,500,000		260,000
									Common stock					700,000		50,000
									APIC					550,000		55,000
									Retained earnings					2,360,000		510,000
														$6,860,000		$1,100,000

a. Disaggregate and document the activity for the 100% Acquisition Accounting Premium (AAP) through December 31, 2016.   ( 2013,2014,2015,2016)

Year ended December 31,
100% AAP Amortization - Dr (Cr)	2013	2014	2015	2016
Property, plant and equipment (PPE), net	$Answer	$Answer	$Answer	$Answer
Customer List	Answer	Answer	Answer	Answer
Royalty Agreement	Answer	Answer	Answer	Answer
Goodwill	Answer	Answer	Answer	Answer
Net amortization	$Answer	$Answer	$Answer	$Answer

	Jan. 1	December 31,
100% Unamortized AAP - Dr (Cr)	2013	2013	2014	2015	2016
Property, plant and equipment (PPE), net	$200,000	$Answer	$Answer	$Answer	$Answer
Customer List	100,000	Answer	Answer	Answer	Answer
Royalty Agreement	80,000	Answer	Answer	Answer	Answer
Goodwill	120,000	Answer	Answer	Answer	Answer
Net unamortized	$500,000	$Answer	$Answer	$Answer	$Answer

b. Compute the amount of the beginning of year [ADJ] adjustment necessary for the consolidation of the financial statements for the year ended December 31, 2016.

Do not use negative signs with your answers below.

Change in RE(S) thru BOY	$Answer
Cumulative AAP amort thru BOY	Answer
BOY Upstream IIP	Answer
ADJ Amount	Answer

c. Complete the consolidating entries according to the C-E-A-D-I sequence and complete the consolidation worksheet.

Answer rating: 100% (QA)

Quiz A Disaggregate and document the activity for the 100 Acquisition Accounting Premium AAP through December 31 2016 2013201420152016 The following table show the workings to get the solution AAP Ori... View the full answer