ABC Co. purchased XYZ Co. on January 1, 2020. ABC Co. uses the equity method to account
Question:
ABC Co. purchased XYZ Co. on January 1, 2020. ABC Co. uses the equity method to account for its investment in its subsidiary. The excess of investment cost over book value was allocated as follows:
Equipment (20-year life) $400,000
Customer list (10-year life) 90,000
Patent (5-year life) 125,000
Goodwill 165,000
Total $780,000
ABC Co. regularly sells inventory to XYZ Co. In 2022, inter-company sales amounted to $60,100, with $18,000 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $24,000.
In 2023, inter-company sales amounted to $98,000 with $45,000 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $35,000.
Financial statements of ABC Co. and XYZ Co. for the year ended December 31, 2023 are presented below.
ABC. Co. | XYZ Co. | |
Sales revenue | $687,000 | $750,000 |
Cost of goods sold | -425,000 | -350,000 |
Gross profit | 262,000 | 400,000 |
Operating expenses | -125,000 | -36,700 |
Income (loss) from subsidiary | 282,300 | |
Net Income | $419,300 | $363,300 |
Retained Earnings, 1/1/23 | $620,400 | $240,000 |
Net income | 419,300 | 363,300 |
Dividends | -98,000 | -12,000 |
Retained Earnings, 12/31/23 | $941,700 | $591,300 |
Cash and receivables | $850,000 | $750,000 |
Inventory | 125,000 | 265,000 |
Equity investment | 1,524,700 | |
Property, plant & equipment (Net) | 1,042,000 | 1,337,860 |
Total Assets | $3,541,700 | $2,352,860 |
Accounts payable | $55,000 | $311,210 |
Accrued liabilities | 450,000 | 370,650 |
Notes payable | 1,250,000 | 665,300 |
Common stock | 95,000 | 183,950 |
Additional paid-in capital | 750,000 | 230,450 |
Retained Earnings, 12/31/23 | 941,700 | 591,300 |
Total Liabilities and Equities | $3,541,700 | $2,352,860 |
Prepare the C-E-A-D-I consolidation entries for 2023. Be sure to label your work with C, E, A, D, I.
