over its 10-year useful life using the straight-line method (no salvage value). The parent had depreci- Following are financial statements of the parent and its subsidiary for the year ended December 31, Cambridge Business Publishers Assume a parent company acquired its subsidiary on January 1, 2016, at a purchase price that was $500,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $240,000 was assigned to a Patent, and $150,000 to an unrecorded Customer List owned by the subsidiary. The Patent asset is being depreciated over its 10-year legal life and the Customer List is being amortized over a 5-year period. Amortization is computed on a straight-line basis with no In January 2018, the parent sold Equipment to its wholly owned subsidiary for a cash price of $160,000. The parent had acquired the equipment at a cost of $185,000 and depreciated the equipment 272 Chapter 41 Consolidated Financial Statements and Intercompany Transactions LO4 52. Prepare consolidation spreadsheet for intercompany sale of equipment-Equity method salvage value. The remaining $110,000 of the purchase price was assigned to Goodwill. X IHAN ated the equipment for 5 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciated the equipment over its remaining 5-year useful life. 2019. The parent uses the equity method to account for its Equity Investment. The Customer List 20 Patent assets were amortized as part of the parent's equity method accounting. Parent Parent Subsidiary Subsidiary $6,920,000 (4,422,000) Balance sheet: Assets Cash Accounts receivable Inventory. PPE, net Equity investment. $2,500,000 (1,520,000) 980,000 0 (660,000) $ 320,000 2,498,000 $ 408,000 605,000 865,000 2,622,000 Income statement: Sales. Cost of goods sold Gross profit... Income (loss) from subsidiary. Operating expenses Net income... Statement of retained earnings: Beginning retained earnings. Net income Dividends Ending retained earnings $ 160,000 500,000 840,000 5,000,000 2,000,000 $8,500,000 0 279,500 (1,777,500) $1,000,000 $4,500,000 $3,290,000 1,000,000 (290,000) $4,000,000 $ 730,000 320,000 (50,000) $1,000,000 Liabilities and stockholders' equity Accounts payable Other current liabilities Long-term liabilities. Common stock $ 186,000 570,000 2,500,000 493,000 751,000 4,000,000 $8,500,000 $ 357,500 586,000 1,800,000 200,000 556,500 1,000,000 $4,500,000 APIC.... Retained earnings a. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [I] entries for the year of sale. b. Compute the remaining portion of the deferred gain at January 1, 2019. Show the computation to yield the $279,500 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2019, d. Compute the Equity Investment balance of $2,000,000 at December 31, 2019. e. Prepare the consolidation entries for the year ended December 31, 2019. f. Prepare the consolidation spreadsheet for the year ended December 31, 2019. C. over its 10-year useful life using the straight-line method (no salvage value). The parent had depreci- Following are financial statements of the parent and its subsidiary for the year ended December 31, Cambridge Business Publishers Assume a parent company acquired its subsidiary on January 1, 2016, at a purchase price that was $500,000 in excess of the book value of the subsidiary's Stockholders' Equity on the acquisition date. Of that excess, $240,000 was assigned to a Patent, and $150,000 to an unrecorded Customer List owned by the subsidiary. The Patent asset is being depreciated over its 10-year legal life and the Customer List is being amortized over a 5-year period. Amortization is computed on a straight-line basis with no In January 2018, the parent sold Equipment to its wholly owned subsidiary for a cash price of $160,000. The parent had acquired the equipment at a cost of $185,000 and depreciated the equipment 272 Chapter 41 Consolidated Financial Statements and Intercompany Transactions LO4 52. Prepare consolidation spreadsheet for intercompany sale of equipment-Equity method salvage value. The remaining $110,000 of the purchase price was assigned to Goodwill. X IHAN ated the equipment for 5 years at the time of sale. The subsidiary retained the depreciation policy of the parent and depreciated the equipment over its remaining 5-year useful life. 2019. The parent uses the equity method to account for its Equity Investment. The Customer List 20 Patent assets were amortized as part of the parent's equity method accounting. Parent Parent Subsidiary Subsidiary $6,920,000 (4,422,000) Balance sheet: Assets Cash Accounts receivable Inventory. PPE, net Equity investment. $2,500,000 (1,520,000) 980,000 0 (660,000) $ 320,000 2,498,000 $ 408,000 605,000 865,000 2,622,000 Income statement: Sales. Cost of goods sold Gross profit... Income (loss) from subsidiary. Operating expenses Net income... Statement of retained earnings: Beginning retained earnings. Net income Dividends Ending retained earnings $ 160,000 500,000 840,000 5,000,000 2,000,000 $8,500,000 0 279,500 (1,777,500) $1,000,000 $4,500,000 $3,290,000 1,000,000 (290,000) $4,000,000 $ 730,000 320,000 (50,000) $1,000,000 Liabilities and stockholders' equity Accounts payable Other current liabilities Long-term liabilities. Common stock $ 186,000 570,000 2,500,000 493,000 751,000 4,000,000 $8,500,000 $ 357,500 586,000 1,800,000 200,000 556,500 1,000,000 $4,500,000 APIC.... Retained earnings a. Prepare the journal entry that the parent made to record the sale of the equipment to the subsidiary, the journal entry that the subsidiary made to record the purchase, and the [I] entries for the year of sale. b. Compute the remaining portion of the deferred gain at January 1, 2019. Show the computation to yield the $279,500 of Income (loss) from subsidiary reported by the parent for the year ended December 31, 2019, d. Compute the Equity Investment balance of $2,000,000 at December 31, 2019. e. Prepare the consolidation entries for the year ended December 31, 2019. f. Prepare the consolidation spreadsheet for the year ended December 31, 2019. C