Computing the amount of equity income and preparing [] consolidation journal entries Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013: Subsidiary Intercompany Net Income 2013 $500,000 2012 $400,000 Inventory Gross Sales Profit % End of Year $75,000 30% $50,000 sales Sales Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company uses the full equity method to account for its subsidiary. Description [cogs] Investment in subsidiary Cost of goods sold % Inventory Remaining at Receivable (Payable) a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity method of accounting for its Equity Investment? $ 1,197,300 b. Prepare the required [] consolidation journal entries for 2013. Consolidation Worksheet Cost of goods sold [cogs] Cost of goods sold Inventory [pay] Accounts payable Accounts receivable 10% 9% 4 ✓ ✓ ✓ ✓ ✓ ✓ Debit 6,480 x 0✔ $25,000 $20,000 180,000 0✔ 9,180 x 0✔ 60,000 x 0✔ Credit 0✔ 64,800 0✔ 180,000 0✔ 9,180 x 60,000 x
Computing the amount of equity income and preparing [] consolidation journal entries Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013: Subsidiary Intercompany Net Income 2013 $500,000 2012 $400,000 Inventory Gross Sales Profit % End of Year $75,000 30% $50,000 sales Sales Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company uses the full equity method to account for its subsidiary. Description [cogs] Investment in subsidiary Cost of goods sold % Inventory Remaining at Receivable (Payable) a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity method of accounting for its Equity Investment? $ 1,197,300 b. Prepare the required [] consolidation journal entries for 2013. Consolidation Worksheet Cost of goods sold [cogs] Cost of goods sold Inventory [pay] Accounts payable Accounts receivable 10% 9% 4 ✓ ✓ ✓ ✓ ✓ ✓ Debit 6,480 x 0✔ $25,000 $20,000 180,000 0✔ 9,180 x 0✔ 60,000 x 0✔ Credit 0✔ 64,800 0✔ 180,000 0✔ 9,180 x 60,000 x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Computing the amount of equity income and preparing [I] consolidation journal entries
Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers
outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013:
Subsidiary Intercompany
Net
Inventory
Sales
Income
2013 $500,000
2012 $400,000
$75,000
$50,000
Description
[cogs] Investment in subsidiary
Cost of goods sold
[sales] Sales
Gross
Profit %
Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company
uses the full equity method to account for its subsidiary.
Cost of goods sold
[lcogs] Cost of goods sold
Inventory
[pay] Accounts payable
30%
a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity
method of accounting for its Equity Investment?
$1,197,300
b. Prepare the required [I] consolidation journal entries for 2013.
Consolidation Worksheet
Accounts receivable
28%
% Inventory
Remaining at Receivable
End of Year
(Payable)
10%
$25,000
9%
$20,000
✓
✓
✓
✓
✓
Debit
6,480 *
0✓
180,000 *
OV
9,180 x
0✔
60,000 x
0✔
Credit
0✓
64,800 x
0✔
180,000 x
0✓
9,180 x
0
60,000 *](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3cadaab7-0242-405d-ab75-d1a15c225b30%2F683b6ad1-405c-41c1-8dd3-8d1649fd2dc6%2Fn5gnv4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Computing the amount of equity income and preparing [I] consolidation journal entries
Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, ultimately, sells the inventory to customers
outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013:
Subsidiary Intercompany
Net
Inventory
Sales
Income
2013 $500,000
2012 $400,000
$75,000
$50,000
Description
[cogs] Investment in subsidiary
Cost of goods sold
[sales] Sales
Gross
Profit %
Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company
uses the full equity method to account for its subsidiary.
Cost of goods sold
[lcogs] Cost of goods sold
Inventory
[pay] Accounts payable
30%
a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity
method of accounting for its Equity Investment?
$1,197,300
b. Prepare the required [I] consolidation journal entries for 2013.
Consolidation Worksheet
Accounts receivable
28%
% Inventory
Remaining at Receivable
End of Year
(Payable)
10%
$25,000
9%
$20,000
✓
✓
✓
✓
✓
Debit
6,480 *
0✓
180,000 *
OV
9,180 x
0✔
60,000 x
0✔
Credit
0✓
64,800 x
0✔
180,000 x
0✓
9,180 x
0
60,000 *
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