Property, plant and equipment (PPE), net

Assume
that a parent company acquired a subsidiary on January 1, 2010. The
purchase price was $500,000 million in excess of the subsidiary’s
book value of Stockholders’ Equity on the acquisition date, and that
excess was assigned to the following AAP assets:

AAP Asset	Original Amount	Original Useful Life (years)
Property, plant and equipment (PPE), net	$100,000	20
Customer list	165,000	10
Royalty agreement	135,000	10
Goodwill	100,000	indefinite
	$500,000

The
AAP assets with a definite useful life have been amortized as part of
the parent’s equity method accounting. The Goodwill asset has been
tested annually for impairment, and has not been found to be
impaired.

Assume
that the parent company sells inventory to its wholly owned
subsidiary. The subsidiary, ultimately, sells the inventory to
customers outside of the consolidated group. You have compiled the
following data for the years ending 2012 and 2013:

	Inventory Sales	Gross Profit Remaining in Unsold Inventory	Receivable (Payable)
2013	$68,000	$19,580	$27,400
2012	$43,700	$12,797	$13,437

The
inventory not remaining at the end of the year has been sold to
unaffiliated entities outside of the consolidated group. The parent
uses the equity method to account for its Equity Investment.

The
financial statements of the parent and its subsidiary for the year
ended December 31, 2013, follow in part d. below.

a.
Show the computation to yield the pre-consolidation $69,837 Income
(loss) from subsidiary reported by the parent during 2013. Hint: Use
negative signs with answers when appropriate.

AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer
Plus:	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer
Less:	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer
AAP depreciation	Answer
	Income (loss) from subsidiary	Answer

b.
Show the computation to yield the Equity Investment balance of
$959,789 reported by the parent at December 31, 2013. Hint: Use
negative signs with answers when appropriate.

Common stock	Answer
APIC	Answer
Retained earnings	Answer
BOY unamortized AAP	Answer
BOY deferred profit	Answer
Income (loss) from subsidiary	Answer
Dividends	Answer
Equity investment	Answer

c.
Prepare the consolidation journal entries for the year ended December
31, 2013.

Consolidation Worksheet
	Description	Debit	Credit
[C]	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPIncome (loss) from subsidiaryDividends</selectutf8,%3csvg”>	Answer	Answer
	Dividends	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPIncome (loss) from subsidiaryDividends</selectutf8,%3csvg”>	Answer	Answer
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentPatentAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
[A]	PPE net	Answer	Answer
	Customer list	Answer	Answer
	Royalty agreement	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
[D]	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	PPE net	Answer	Answer
	Customer list	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPBOY deferred profitDividends</selectutf8,%3csvg”>	Answer	Answer
[Icogs]	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
[Isales]	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
[Icogs]	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
[Ipay]	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer
	AnswerCashAccounts receivableInventoryPPE, netCustomer listRoyalty agreementGoodwillAccounts payableOther current liabilitiesLong-term liabilitiesNet income of subsidiarySalesCost of goods soldPrior year intercompany gross profitCurrent year intercompany gross profitAAP depreciationOperating expensesNet incomeEquity investmentRetained earningsAPICCommon stockBOY retained earningsEOY retained earningsBOY unamortized AAPDividends</selectutf8,%3csvg”>	Answer	Answer

d.
Prepare the consolidation spreadsheet for the year ended December 31,
2013. Hint: Use negative signs with answers whe

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