Reference no: EM131100003
Parent purchased Subsidiary on January 1, 2013. The excess of investment cost over book value was allocated as follows:
Equipment (20-year life) $110,000
Customer list (10-year life) 192,500
Patent (10-year life) 137,500
Goodwill 110,000
Total $550,000
Parent regularly sells merchandise to Subsidiary. In 2015, inter-company sales amounted to $48,070, with $14,253 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $14,560.
In 2016, inter-company sales amounted to $74,800 with $21,318 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $29,920.
Financial statements of Parent and Subsidiary for the year ended December 31, 2016 are presented below.
|
Parent
|
Subsidiary
|
Sales revenue
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$4,807,000
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$ 1,722,600
|
Cost of goods sold
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(3,364,900)
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(1,033,560)
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Gross profit
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1,442,100
|
689,040
|
Operating expenses
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(913,030)
|
(447,876)
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Equity income
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195,599
|
_
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Net Income
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$ 724,669
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$ 241,164
|
|
|
|
Retained Earnings, 1/1/16
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$2,415,037
|
$ 890,010
|
Net income
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724,669
|
241,164
|
Dividends
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(138,780)
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(31,352)
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Retained Earnings, 12/31/16
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$3,000,926
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$ 1,099,822
|
|
|
|
Cash and receivables
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$1,345,251
|
$ 956,434
|
Inventory
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932,558
|
513,334
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Equity investment
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1,732,894
|
|
Property, plant & equipment (Net)
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4,485,892
|
949,728
|
Total Assets
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$8,496,595
|
$2,419,496
|
|
|
|
Accounts payable
|
$ 639,306
|
$ 205,608
|
Accrued liabilities
|
722,813
|
281,476
|
Notes payable
|
2,750,000
|
574,200
|
Common stock
|
785,945
|
114,840
|
Additional paid-in capital
|
597,605
|
143,550
|
Retained Earnings, 12/31/16
|
3,000,926
|
1,099,822
|
Total Liabilities and Equities
|
$8,496,595
|
$2,419,496
|
Required:
a. Prepare the 2016 journal entries, required by the equity method, on Parent's books.
b. Prepare the consolidation entries for 2016.
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