1. Intercompany Transactions - Equity Method 60 points Parent purchased Subsidiary on January 1, 2020. The excess of investment cost over book value of $350,000 was allocated entirely to a 7- year royalty agreement. The parent uses the equity method to account for its investment in its subsidiary In 2021, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $244,000. On January 2, 2022, Parent sold equipment to Subsidiary for $120,000. The equipment had a cost of $85,000 and accumulated depreciation of $40,000. The remaining life of the equipment was estimated at 8 years. Subsidiary regularly sells merchandise to Parent. In 2021, inter-company sales amounted to $82,400, with $16,480 of deferred profit remaining in ending inventory. Year-end inter- company receivables/payables amounted to $16,000. In 2022, inter-company sales amounted to $75,000 with $37,500 of deferred profit remaining in ending inventory. Year-end inter- company receivables/payables amounted to $28.000. Financial statements of Parent and Subsidiary for the year ended December 31, 2022 are presented below. Cost of Goods Sold 590.000-1950 000 $115 $14.000 Retained Famingo, 1102 Income 301600051 750 000 3346 214000 5 000 78.00) 185 85551.78300 Retained Ewing, 1231122 908.000 58.000 Property, Pront & Equit Net) 4.562.680 1.118.592 142,500 37.500 1,010 200 51,150 Rond Earning, 1231122 129 a. Prepare the equity method journal entries recorded by the parent to account for its investment in Subsidiary during 2022. b. Prepare confirm the Income (loss) from subsidiary on Parent's pre-consolidation books for 2022. c. Prepare a schedule showing the computation of Equity Investment on Parent's pre-consolidation books at January 1 and December 31, 2022. d. Prepare the consolidation entries for 2022. e. Prepare a consolidating worksheet in excel. Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Loss on sale of equipment Equity Income Net Income Parent Subsidiary $7,500,000 $2,450,000 -5.930,000 -1,950,000 1,570,000 500,000 -1,375,000 -286,000 -25,0000 164,855 0 $334,855 $214,000 Retained Earnings, 1/1/22 Net income Dividends Retained Earnings, 12/31/22 $3,916,000 $1,750,000 334,855 214,000 -85,000 -176.000 $4,165,855 $1,788,000 Cash and receivables $1,750,000 $1,145,600 Inventory 958,000 758,000 Equity Investment 2,397,875 0 Property, Plant & Equipment (Net) 4,562,980 1,116,590 Total Assets $9,668,855 $3,020,190 Accounts payable Accrued liabilities Notes payable Common stock Additional paid-in capital Retained Earnings, 12/31/22 Total Liabilities and Equities $980,000 $225,000 142,800 376,500 1,010,200 51,190 1,792,000 158,000 1,578,000 421,500 4,165,855 1,788,000 $9,668,855 $3,020,190 1. Intercompany Transactions - Equity Method 60 points Parent purchased Subsidiary on January 1, 2020. The excess of investment cost over book value of $350,000 was allocated entirely to a 7- year royalty agreement. The parent uses the equity method to account for its investment in its subsidiary In 2021, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $244,000. On January 2, 2022, Parent sold equipment to Subsidiary for $120,000. The equipment had a cost of $85,000 and accumulated depreciation of $40,000. The remaining life of the equipment was estimated at 8 years. Subsidiary regularly sells merchandise to Parent. In 2021, inter-company sales amounted to $82,400, with $16,480 of deferred profit remaining in ending inventory. Year-end inter- company receivables/payables amounted to $16,000. In 2022, inter-company sales amounted to $75,000 with $37,500 of deferred profit remaining in ending inventory. Year-end inter- company receivables/payables amounted to $28.000. Financial statements of Parent and Subsidiary for the year ended December 31, 2022 are presented below. Cost of Goods Sold 590.000-1950 000 $115 $14.000 Retained Famingo, 1102 Income 301600051 750 000 3346 214000 5 000 78.00) 185 85551.78300 Retained Ewing, 1231122 908.000 58.000 Property, Pront & Equit Net) 4.562.680 1.118.592 142,500 37.500 1,010 200 51,150 Rond Earning, 1231122 129 a. Prepare the equity method journal entries recorded by the parent to account for its investment in Subsidiary during 2022. b. Prepare confirm the Income (loss) from subsidiary on Parent's pre-consolidation books for 2022. c. Prepare a schedule showing the computation of Equity Investment on Parent's pre-consolidation books at January 1 and December 31, 2022. d. Prepare the consolidation entries for 2022. e. Prepare a consolidating worksheet in excel. Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Loss on sale of equipment Equity Income Net Income Parent Subsidiary $7,500,000 $2,450,000 -5.930,000 -1,950,000 1,570,000 500,000 -1,375,000 -286,000 -25,0000 164,855 0 $334,855 $214,000 Retained Earnings, 1/1/22 Net income Dividends Retained Earnings, 12/31/22 $3,916,000 $1,750,000 334,855 214,000 -85,000 -176.000 $4,165,855 $1,788,000 Cash and receivables $1,750,000 $1,145,600 Inventory 958,000 758,000 Equity Investment 2,397,875 0 Property, Plant & Equipment (Net) 4,562,980 1,116,590 Total Assets $9,668,855 $3,020,190 Accounts payable Accrued liabilities Notes payable Common stock Additional paid-in capital Retained Earnings, 12/31/22 Total Liabilities and Equities $980,000 $225,000 142,800 376,500 1,010,200 51,190 1,792,000 158,000 1,578,000 421,500 4,165,855 1,788,000 $9,668,855 $3,020,190