Subsidiary on January 1, 2019.
7-Parent purchased Subsidiary on January 1, 2019. The parent uses the equity method to account for its investment in its subsidiary. The excess of investment cost over book value was allocated as follows:
Equipment (20-year life) $400,000
Customer list (10-year life) 90,000
Patent (5-year life) 125,000
Total $780,000
Parent regularly sells merchandise to Subsidiary. In 2021, inter-company sales amounted to $60,100, with $18,000 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $24,000.
In 2022, inter-company sales amounted to $98,000 with $45,000 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $35,000.
Financial statements of Parent and Subsidiary for the year ended December 31, 2022 are presented below.
|
|
Parent |
Subsidiary |
|
Sales revenue |
$687,000 |
$750,000 |
|
Cost of goods sold |
-425,000 |
-350,000 |
|
Gross profit |
262,000 |
400,000 |
|
Operating expenses |
-125,000 |
-36,700 |
|
Income (loss) from subsidiary |
282,300 |
_________ |
|
Net Income |
$419,300 |
$363,300 |
|
|
|
|
|
|
$620,400 |
$240,000 |
|
Net income |
419,300 |
363,300 |
|
Dividends |
-98,000 |
-12,000 |
|
Retained Earnings, 12/31/22 |
$941,700 |
$591,300 |
|
|
|
|
|
Cash and receivables |
$850,000 |
$750,000 |
|
Inventory |
125,000 |
265,000 |
|
Equity investment |
1,524,700 |
|
|
Property, plant & equipment (Net) |
1,042,000 |
1,337,860 |
|
Total Assets |
$3,541,700 |
$2,352,860 |
|
|
|
|
|
Accounts payable |
$55,000 |
$311,210 |
|
Accrued liabilities |
450,000 |
370,650 |
|
Notes payable |
1,250,000 |
665,300 |
|
Common stock |
95,000 |
183,950 |
|
Additional paid-in capital |
750,000 |
230,450 |
|
Retained Earnings, 12/31/22 |
941,700 |
591,300 |
|
Total Liabilities and Equities |
$3,541,700 |
$2,352,860 |
Required:
a. Prepare the 2022
b. Prepare the consolidation entries for 2022
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