Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

Question

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530

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Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530

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Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530

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Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530

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Answer 5

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530

Answer 6

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Answer 7

Chapter 4, Problem 54P

a.

To determine

Prepare the journal entries made by the parent to record the sale of the equipment to the subsidiary; and by the subsidiary to record the purchase and the [I] entries for the year of sale.

Answer 8

a.

Expert Solution

Explanation of Solution

An acquisition of assets is the purchase of a corporation by purchasing its assets rather than its stock. An acquisition is when one company acquires most or all of the shares of another company to gain control over that company. An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

The required journal entry recorded by the parent is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$89,100
	Accumulated depreciation		$14,400
	Equipment			$86,400
	Gain on sale of Equipment			$17,100
	(To record the sale of equipment)

Table (1)

The required journal entry recorded by the subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$89,100
	Cash			$89,100
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$17,100
	Equipment			$2,700
	Accumulated depreciation			$14,400
	(To adjust Gain, Equipment, and Accumulated Depreciation on the date of the intercompany transfer of equipment – given that the transaction occurred at the beginning of the year, usage of the equipment for the year must be reflected in a separate entry)

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710
	(To eliminate the excess depreciation expense recorded by the parent, and to adjust accumulated depreciation from the BOY amount to the EOY amount)

Table (1)

Working notes:

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

Answer 13

b.

To determine

Compute the remaining portion of the deferred gain on January 1, 2019.

Answer 14

b.

Expert Solution

Explanation of Solution

The portion of gain noticed on a property exchange that is not currently taxed. The gain is generally taxed when the property acquired in the exchange is sold. An exchange of property that is not currently taxed is part of the realized gain. The gain is generally taxed at the time of sale of the property acquired at the exchange.

In January of 2017, the parent sold Equipment to the subsidiary for a cash price of $89,100. The subsidiary retained the depreciation policy of the parent and depreciates the equipment over its remaining 10-year useful life.

Depreciation charged by the subsidiary on equipment is $89,100/10 i.e., $8,910

The parent had acquired the equipment at a cost of $86,400 and depreciated the equipment over its 12-year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $86,400/12 i.e., $7,200.

Calculate excess depreciation:

Excess Depreciation=$8,910−$7,200=$1,710

Operating expenses of the subsidiary is $72,000

Gain on the sale of equipment is $17,100

Through the BOY, two years have passed, so the deferred gain at the start of the current year is as follows:

Deferred gain=$17,100−2×$1,710=$13,680

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $13,680.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

Answer 19

c.

To determine

Compute the amount of net income (loss) from subsidiary reported by the parent company for the year ended Dec 31, 2019 assuming that the parent applied the equity method.

Answer 20

c.

Expert Solution

Explanation of Solution

Equity income is money generated from stock dividends that investors can access by buying dividend-declared stocks or by buying funds that invest in dividend-declared stocks.

Subsidiary net income is $67,500

AAP Depreciation is $13,500

Deferred gain on intercompany sale is $1,710

The computation to yield the income (loss) from subsidiary reported by the parent company during 2019 is as follows:

Particulars	Amount ($)
Subsidiary net income	$67,500
AAP Depreciation	($13,500)
Deferred gain on intercompany sale	($1,710)
Income (loss) from subsidiary	$55,710

Table (1)

Hence, the income (loss) from subsidiary is $55,710.

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

Answer 25

d.

To determine

Compute the equity investment account balance on Dec 31, 2019.

Answer 26

d.

Expert Solution

Explanation of Solution

An investment in equity is money which is invested in a company by buying that company's shares in the stock market. Typically, those shares are traded in a stock exchange.

EOY retained earnings of subsidiary is $261,000

EOY Common stock of subsidiary is $270,000.

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$45,000	5×$4,500=$22,500	$22,500
Patent	$72,000	5×$9,000=$45,000	$27,000
Goodwill	$81,000		$81,000
EOY AAP assets	$207,000__	$13,500__	$130,500__

The computation to yield the Equity Investment balance on Dec 31, 2019 is as follows:

Particulars	Amount ($)
EOY subsidiary retained earnings	$261,000
EOY subsidiary common stock	$270,000
Add: Unamortized AAP @ EOY	$130,500
Less: Unconfirmed gain @ EOY	$11,970
EOY Equity investment balance	$649,530

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $649,530

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

Answer 31

e.

To determine

Prepare the consolidation entries for the year ended Dec 31, 2019.

Answer 32

e.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

Consolidated accounting is used to club a parent company's financial information and one or more subsidiaries. The parent prepares consolidated financial statements through adjustment of entries and elimination of transactions between companies.

The computation of BOY [ADJ] for 2019 consolidation is as follows:

Particulars	Amount ($)
Change in retained earnings (S) thru BOY	$126,000
Cumulative AAP amort thru BOY	$63,000
Less: BOY Downstream Unconf Asset	$13,680
ADJ Amount	$49,320

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$49,320
	BOY Retained Earnings (P)			$49,320

	[C] Income (loss) from subsidiary		$31,500
	Dividends			$31,500

	[E] Common Stock (S) @ BOY		$270,000
	Retained Earnings (S) @BOY		$225,000
	Equity Investment			$495,000

	[A] PPE, net		$27,000
	Patent		$36,000
	Goodwill		$81,000
	Equity Investment @ BOY			$144,000

	[D Depreciation and Amort. expenses		$13,500
	PPE, net			$4,500
	Patent			$9,000
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$13,680
	PPE, net			$13,680

	[I_dep] PPE, net		$1,710
	Depreciation Expense			$1,710

Table (1)

Answer 33

e.

Expert Solution

Answer 34

e.

Expert Solution

Answer 35

Expert Solution

Answer 36

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530

Answer 37

f.

To determine

Prepare the consolidation spreadsheet for the year ended December 31, 2019.

Answer 38

f.

Expert Solution

Explanation of Solution

Consolidated financial statements are a group of entities financial statements that are presented as those of a single economic entity. They are the financial statements of a group in which the parent company and its subsidiaries introduce their assets, liabilities, equity, revenue, expenses and cash flows as those of a single business organization.

A consolidated balance sheet provides a parent company's assets and liabilities and all of its subsidiaries in a legal document, without any differentiation on which items pertain to which companies.

Consolidation worksheet is an instrument used to prepare a parent's consolidated financial statements and their subsidiaries. It demonstrates the individual book values of companies, the adjustments and eliminations necessary, and the consolidated final values.

The consolidated spreadsheet for the year ended December 31, 2019 is shown below:

				Elimination entries
Income Statement	Parent	Subsidiary		Dr		Cr	Consolidated
Sales	$900,000	$414,000	]				$1,314,000
Cost of goods sold	(495,000)	(252,000)					(747,000)

Gross Profit	405,000	162,000					567,000
Deprec. & amort. expense	(27,000)	(18,000)	[D]	13,500			(56,790)
Operating Expenses	(270,000)	(72,000)			[I_dep]	1,710	(342,000)
Interest Expense	(13,500)	(4,500)					(18,000)
Total Expenses	(310,500)	(94,500)					(416,790)
Income (loss) from subsidiary	31,500		[C]	31,500
Net Income	$126,000	$67,500					$150,210

Statement of Retained Earnings
Beginning Retained Earnings	$495,000	$225,000	[E]	225,000	[ADJ]	49,320	$544,320
Net Income	126,000	67,500					150,210
Dividends	(103,500)	(31,500)			[C]	31,500	(103,500)
Ending retained Earnings	$517,500	$261,000					$591,030

Balance Sheet
Assets
Cash	$81,000	$54,000					$135,000
Accounts receivable	108,000	81,000					189,000
Inventory	252,000	126,000					378,000
Equity investment	576,000		[ADJ]	49,320	[E]	495,000	0
			[I_gain]	13,680	[A]	144,000

PPE, net	306,000	216,000	[A]	27,000	[D]	4,500	532,530
			[I_dep]	1,710	[I_gain]	13,680
Other Assets	117,000	198,000					315,000
Patent			[A]	36,000	[D]	9,000	27,000
Goodwill			[A]	81,000			81,000
Total Assets	$1,440,000	$675,000					1,657,530

Liabilities and Stockholder's Equity
Accounts payable	$225,000	$48,600					$273,600
Accrued liabilities	22,500	41,400					63,900
Notes Payable	135,000	54,000					189,000
Common stock	540,000	270,000	[E]	270,000			540,000
Retained earnings	517,500	261,000					591,030

Total liabilities and equity	$1,440,000	$675,000		$748,710		$748,710	$1,657,530