Part c:

1/1/19 cs + apic + re = 409,500. (top)

12/31/19 cs+ apic + re = 518,700. (bottom)

Part e:

1/1/19 cs + apic + re = 175,500 (top)

12/31/19 cs + apic + re = 222,300 (bottom)

Transcribed Image Text:

A parent company acquired its 70% interest in its subsidiary on January 1, 2014. On the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $455,000 in excess of the book value of the subsidiary's Stockholders' Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiary's financial statements (i.e., there is no Goodwill). The Royalty Agreement has a 7 year estimated remaining economic life on the acquisition date. Both companies use straight line amortization, with no terminal value. In January 2017, the subsidiary sold Equipment to the parent for a cash price of $325,000. The subsidiary acquired the equipment at a cost of $624,000 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 6 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 4 year useful life. Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2019. The parent uses the equity method to account for its Equity Investment. Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales $4,420,000 $1,170,000 Assets Cost of goods sold (3,120,000) (650,000) Cash $805,350 $325,000 Gross profit 1,300,000 520,000 Accounts receivable 689,000 546,000 Income (loss) from subsidiary 104,195 Inventory 1,170,000 715,000 Operating expenses (678,600) (325,000) PPE, net 4,550,000 1,300,000 Net income $725,595 $195,000 Equity investment 551,005 $7,765,355 $2,886,000 Statement of retained earnings: BOY retained earnings $2,307,760 $260,000 Liabilities and stockholders' equity Net income 725,595 195,000 Accounts payable $442,000 $325,000 Other current liabilities 520,000 390,000 Dividends (130,000) (39,000) Long-term liabilities 1,950,000 1,430,000 EOY retained earnings $2,903,355 $416,000 Common stock 260,000 130,000 APIC 1,690,000 195,000 Retained earnings 2,903,355 416,000 $7,765,355 $2,886,000 A parent company acquired its 70% interest in its subsidiary on January 1, 2014. On the acquisition date, the total fair value of the controlling interest and the noncontrolling interest was $455,000 in excess of the book value of the subsidiary's Stockholders' Equity. All of that excess was allocated to a Royalty Agreement, which had a zero book value in the subsidiary's financial statements (i.e., there is no Goodwill). The Royalty Agreement has a 7 year estimated remaining economic life on the acquisition date. Both companies use straight line amortization, with no terminal value. In January 2017, the subsidiary sold Equipment to the parent for a cash price of $325,000. The subsidiary acquired the equipment at a cost of $624,000 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 6 years at the time of sale. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its remaining 4 year useful life. Following are pre-consolidation financial statements of the parent and its subsidiary for the year ended December 31, 2019. The parent uses the equity method to account for its Equity Investment. Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales $4,420,000 $1,170,000 Assets Cost of goods sold (3,120,000) (650,000) Cash $805,350 $325,000 Gross profit 1,300,000 520,000 Accounts receivable 689,000 546,000 Income (loss) from subsidiary 104,195 Inventory 1,170,000 715,000 Operating expenses (678,600) (325,000) PPE, net 4,550,000 1,300,000 Net income $725,595 $195,000 Equity investment 551,005 $7,765,355 $2,886,000 Statement of retained earnings: BOY retained earnings $2,307,760 $260,000 Liabilities and stockholders' equity Net income 725,595 195,000 Accounts payable $442,000 $325,000 Other current liabilities 520,000 390,000 Dividends (130,000) (39,000) Long-term liabilities 1,950,000 1,430,000 EOY retained earnings $2,903,355 $416,000 Common stock 260,000 130,000 APIC 1,690,000 195,000 Retained earnings 2,903,355 416,000 $7,765,355 $2,886,000