Consolidation at the end of the first year subsequent to date of acquisition-Equity method (purchase price equals book value) Assume that a parent company acquires its subsidiary on January 1, 2016, by exchanging 40,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $30 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year. On the acquisition date, all of the subsidiary's assets and liabilities had fair values equaling their book values. The parent uses the equity method of pre-consolidation Equity investment bookkeeping. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016. Income statement Sales Cost of goods sold Gross profit Equity income Operating expenses Net income Statement of retained earnings BOY retained earnings Net income Dividends Ending retained earnings Description Additional paid in capital 19 Parent Subsidiary Equity investment at 1/1/16 $ Plus: Equity investment at 12/31/16 $ Description $ 2,960,000 $1,687,000 Assets (2,072,000) (1,008,000) Cash a. Prepare the journal entry to record the acquisition of the subsidiary. General Journal Equity investment 1,881,600 567,800 (112,160) $ 2,337,240 $1,067,920 [E] Common stock APIC 888,000 679,000 Accounts receivable 242,200 Inventory (562,400) (436,800) Equity investment $ 567,800 $ 242,200 Debit 0 0 0 0 0 c. Prepare the consolidation entries for the year ended December 31, 2016. Consolidation journal Debit 0 0 0 868,000 Liabilities and stockholders' equity 242,200 Accounts payable (42,280) Accrued liabilities Credit 0 0 Balance sheet 0 0 0 Property, plant & equipment b. Show the computations to yield the Equity Investment reported by the parent in the amount of $1,399,920. Do not use negative signs with your answers. 0 Credit 0 Long term liabilities Common stock APIC Retained earnings 0 0 0 0 0 0 Parent Subsidiary $ 708,920 378,880 574,240 1,399,920 $432,880 469,760 500,640 2,170,240 926,240 $5,232,200 $2,329,520 $216,640 257,520 $ 160,160 209,440 560,000 112,000 414,400 2,006,400 220,000 2,337,240 1,067,920 $5,232,200 $2,329,520