Consolidation worksheet for gain on constructive retirement of subsidiary’s debt with no AAP—Equity method

Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 80 percent controlling interest was $640,000 and the fair value of the 20 percent non-controlling interest was $160,000. On January 1, 2015, the book value of net assets equaled $800,000 and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e., there was no AAP or Goodwill).

On December 31, 2016, the Subsidiary company issued $800,000 (face) 8 percent, five-year bonds to an unaffiliated company for $832,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight-line method. This results in annual bond-payable premium amortization equal to $6,400 per year.

On December 31, 2018, the Parent paid $776,000 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $8,000 per year.

The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2019:

The parent uses the equity method of pre-consolidation investment bookkeeping. Provide the consolidation entries and prepare a consolidation worksheet for the year ended December 31, 2019.

Round answers to the nearest whole number.  

(The part with the up and down arrows/triangles may/may not be correct. The options for that is: BOY Retained Earnings Subsidiary, Dividends-Subsidiary, Income Attributed to NCI, Interest Income, Investment in Bonds Net, Investment in Subsidiary

Use negative signs with your answers in the Consolidated column for: Cost of goods sold, all expenses (inc. Total expenses), Income attributable to NCI and Dividends.

  
 
 

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Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $4,500,000 $800,000 Assets Cost of goods sold (2,800,000) (500,000) Cash $700,000 $400,000 Gross profit 1,700,000 300,000 Accounts receivable 850,000 600,000 Operating & other expenses (1,400,000) (146,000) Inventories 900,000 800,000 Bond interest income 72,000 PPE, net 2,000,000 1,500,000 Bond interest expense (57,600) Equity investment 778,560 Income from subsidiary 62,720 Investment in bond (net) 784,000 Net income $434,720 $96,400 $6,012,560 $3,300,000 Statement of retained earnings Liabilities and stockholders' equity BOY retained earnings $1,577,840 $240,800 Accounts payable $700,000 $450,000 Net income 434,720 96,400 Other current liabilities 900,000 650,000 Dividends (200,000) (40,000) Bond payable (net) 812,800 Ending retained earnings $1,812,560 $297,200 Other long-term liabilities 1,000,000 450,000 Common stock 600,000 140,000 APIC 1,000,000 500,000 Retained earnings 1,812,560 297,200 6,012,560 3,300,000 Parent Subsidiary Parent Subsidiary Income statement Balance sheet Sales $4,500,000 $800,000 Assets Cost of goods sold (2,800,000) (500,000) Cash $700,000 $400,000 Gross profit 1,700,000 300,000 Accounts receivable 850,000 600,000 Operating & other expenses (1,400,000) (146,000) Inventories 900,000 800,000 Bond interest income 72,000 PPE, net 2,000,000 1,500,000 Bond interest expense (57,600) Equity investment 778,560 Income from subsidiary 62,720 Investment in bond (net) 784,000 Net income $434,720 $96,400 $6,012,560 $3,300,000 Statement of retained earnings Liabilities and stockholders' equity BOY retained earnings $1,577,840 $240,800 Accounts payable $700,000 $450,000 Net income 434,720 96,400 Other current liabilities 900,000 650,000 Dividends (200,000) (40,000) Bond payable (net) 812,800 Ending retained earnings $1,812,560 $297,200 Other long-term liabilities 1,000,000 450,000 Common stock 600,000 140,000 APIC 1,000,000 500,000 Retained earnings 1,812,560 297,200 6,012,560 3,300,000

Answer rating: 100% (QA)

PART 1 CONSOLIDATED JOURNAL DESCRIPTION DEBIT CREDIT C Equity Income 62720 Net income Attributable to NCI 19280 Dividends subsidiary 40000 Investment ... View the full answer