Assume a parent company acquired a subsidiary on January 1, 2017. The purchase price was $820,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following :

[A] Asset								Original Amount			Original Useful Life
Property, plant and equipment (PPE), net								$240,000			12	years
Patent								240,000			8	years
License								105,000			10	years
Goodwill								225,000			Indefinite
								$810,000

  

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The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation Equity Method accounting. The Goodwill asset has been tested annually for impaiment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales.... $4.200,000 $2.405.000 Assets Cost of goods sold. Gross profit. Equity income. Operating expenses. (3.000,000) (1,190.000) Cash... $ 320,000 $ 510,000 1,200,000 1,215,000 Accounts receivable. 620,000 460,000 Inventory ... (900,000) Equity investment.. $ 600,000 $ 315,000 Property, plant and equipment (PPE), net 180,000 (780,000) 760,000 2,500,000 594,000 Net income.. 1,096,000 3,200,000 S7,400.000 $2.660,000 Statement of retained earnings: Beginning retained earnings... $1,800,000 $ 628,000 Liabilities and stockholders' equity Net income.. Dividends. 315,000 Accounts payable... (43,000) Accrued iabilities. $ 610,000 $ 190,000 700,000 600,000 (150,000) 246,000 $2250.000 $ 900,000 Long-term liabilities. 1,000,000 940,000 Ending retained earmings. Common stock. APIC... Retained earnings 664,000 150,000 510,000 900,000 1,900,000 2,250,000 S7,400,000 $2,660,000 The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation Equity Method accounting. The Goodwill asset has been tested annually for impaiment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales.... $4.200,000 $2.405.000 Assets Cost of goods sold. Gross profit. Equity income. Operating expenses. (3.000,000) (1,190.000) Cash... $ 320,000 $ 510,000 1,200,000 1,215,000 Accounts receivable. 620,000 460,000 Inventory ... (900,000) Equity investment.. $ 600,000 $ 315,000 Property, plant and equipment (PPE), net 180,000 (780,000) 760,000 2,500,000 594,000 Net income.. 1,096,000 3,200,000 S7,400.000 $2.660,000 Statement of retained earnings: Beginning retained earnings... $1,800,000 $ 628,000 Liabilities and stockholders' equity Net income.. Dividends. 315,000 Accounts payable... (43,000) Accrued iabilities. $ 610,000 $ 190,000 700,000 600,000 (150,000) 246,000 $2250.000 $ 900,000 Long-term liabilities. 1,000,000 940,000 Ending retained earmings. Common stock. APIC... Retained earnings 664,000 150,000 510,000 900,000 1,900,000 2,250,000 S7,400,000 $2,660,000 The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation Equity Method accounting. The Goodwill asset has been tested annually for impaiment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales.... $4.200,000 $2.405.000 Assets Cost of goods sold. Gross profit. Equity income. Operating expenses. (3.000,000) (1,190.000) Cash... $ 320,000 $ 510,000 1,200,000 1,215,000 Accounts receivable. 620,000 460,000 Inventory ... (900,000) Equity investment.. $ 600,000 $ 315,000 Property, plant and equipment (PPE), net 180,000 (780,000) 760,000 2,500,000 594,000 Net income.. 1,096,000 3,200,000 S7,400.000 $2.660,000 Statement of retained earnings: Beginning retained earnings... $1,800,000 $ 628,000 Liabilities and stockholders' equity Net income.. Dividends. 315,000 Accounts payable... (43,000) Accrued iabilities. $ 610,000 $ 190,000 700,000 600,000 (150,000) 246,000 $2250.000 $ 900,000 Long-term liabilities. 1,000,000 940,000 Ending retained earmings. Common stock. APIC... Retained earnings 664,000 150,000 510,000 900,000 1,900,000 2,250,000 S7,400,000 $2,660,000 The [A] assets with definite useful lives have been depreciated or amortized as part of the parent's pre- consolidation Equity Method accounting. The Goodwill asset has been tested annually for impaiment, and has not been found to be impaired. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows: Parent Subsidiary Parent Subsidiary Income statement: Balance sheet: Sales.... $4.200,000 $2.405.000 Assets Cost of goods sold. Gross profit. Equity income. Operating expenses. (3.000,000) (1,190.000) Cash... $ 320,000 $ 510,000 1,200,000 1,215,000 Accounts receivable. 620,000 460,000 Inventory ... (900,000) Equity investment.. $ 600,000 $ 315,000 Property, plant and equipment (PPE), net 180,000 (780,000) 760,000 2,500,000 594,000 Net income.. 1,096,000 3,200,000 S7,400.000 $2.660,000 Statement of retained earnings: Beginning retained earnings... $1,800,000 $ 628,000 Liabilities and stockholders' equity Net income.. Dividends. 315,000 Accounts payable... (43,000) Accrued iabilities. $ 610,000 $ 190,000 700,000 600,000 (150,000) 246,000 $2250.000 $ 900,000 Long-term liabilities. 1,000,000 940,000 Ending retained earmings. Common stock. APIC... Retained earnings 664,000 150,000 510,000 900,000 1,900,000 2,250,000 S7,400,000 $2,660,000

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