Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500

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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 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500

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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 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500

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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 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500

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Answer 5

Chapter 4, Problem 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500

Answer 6

Chapter 4, Problem 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Answer 7

Chapter 4, Problem 55P

a.

To determine

Prepare the journal entries made by the subsidiary to record the sale of the equipment to the parent; and by the parent 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 subsidiary is as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Cash		$79,200
	Accumulated depreciation		$16,000
	Equipment			$80,000
	Gain on sale of Equipment			$15,200
	(To record the sale of equipment)

Table (1)

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

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	Equipment		$79,200
	Cash			$79,200
	(To record the purchase of equipment)

	[I_gain] Gain on sale of equipment		$15,200
	Equipment		$800
	Accumulated depreciation			$16,000
	(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		$1,900
	Depreciation Expense			$1,900
	(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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

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 subsidiary sold Equipment to the subsidiary for a cash price of $79,200. The parent retained the depreciation policy of the parent and depreciates the equipment over its remaining 8-year useful life.

Depreciation charged by the parent on equipment is $79,200/8 i.e., $9,900

The subsidiary had acquired the equipment at a cost of $80,000 and depreciated the equipment over its 10 year useful life using the straight-line method.

Depreciation charged by the parent on equipment is $80,000/10 i.e., $8,000.

Calculate excess depreciation:

Excess Depreciation=$9,900−$8,000=$1,900

Operating expenses of the subsidiary is $64,000

Gain on the sale of equipment is $15,200

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

Deferred gain=$15,200−2×$1,900=$11,400

Hence, the remaining portion of the deferred gain on Jan 1, 2019 is $11,400.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

Answer 19

c.

To determine

Compute the amount of equity income 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 $76,000

AAP Depreciation is $20,800

Deferred gain on intercompany sale is $1,900

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

Particulars	Amount ($)
Subsidiary net income	$76,000
AAP Depreciation	($20,800)
Deferred gain on intercompany sale	($1,900)
Income (loss) from subsidiary	$57,100

Table (1)

Hence, the income (loss) from subsidiary is $57,100.

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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 $248,000

EOY Common stock of subsidiary is $48,000.

EOY subsidiary APIC is $192,000

Calculate EOY Unamortized AAP assets:

Particulars	Amount ($)	Dep./Amort.	Amount
PPE, net	$51,200	4×$6,400=$25,600	$25,600
Licenses	$72,000	4×$14,400=$57,600	$14,400
Goodwill	$96,000		$96,000
EOY AAP assets	$219,200__	$20,800__	$136,000__

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

Particulars	Amount ($)
EOY subsidiary retained earnings	$248,000
EOY subsidiary common stock	$48,000
EOY subsidiary APIC	$192,000
Add: Unamortized AAP @ EOY	$136,000
Less: Unconfirmed gain @ EOY	$9,500
EOY Equity investment balance	$614,500

Table (1)

Hence, the equity investment balance as on Dec 31, 2019 is $614,500

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$147,200
Cumulative AAP amort thru BOY	$62,400
Less: BOY Downstream Unconf Asset	$11,400
ADJ Amount	$73,400

Table (1)

The required consolidation journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
	[ADJ] BOY Equity Investment		$73,400
	BOY Retained Earnings (P)			$73,400

	[C] Income (loss) from subsidiary		$28,000
	Dividends			$28,000

	[E] Common Stock (S) @ BOY		$48,000
	BOY APIC (S)		$192,000
	Retained Earnings (S) @BOY		$200,000
	Equity Investment			$440,000

	[A] PPE, net		$32,000
	Licenses		$28,800
	Goodwill		$96,000
	Equity Investment			$156,800

	[D Depreciation and Amort. expenses		$20,800
	PPE, net			$6,400
	Licenses			$14,400
	(To record depreciation and amortization expense for the [A] assets)

	[I_gain] Equity investment @BOY		$11,400
	PPE, net			$11,400

	[I_dep] PPE, net		$1,900
	Depreciation Expense			$1,900

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500

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	$960,000	$16,000	]				$1,360,000
Cost of goods sold	(560,000)	(240,000)					(8,000,000)

Gross Profit	400,000	160,000					560,000
Deprec. & amort. expense	(24,000)	(16,000)	[D]	20,800			(58,900)
Operating Expenses	(240,000)	(64,000)			[I_dep]	1,900	(304,000)
Interest Expense	(12,000)	(4,000)					(16,000)
Total Expenses	(276,000)	(84,000)					(378,900)
Income (loss) from subsidiary	28,000		[C]	28,000
Net Income	$152,000	$76,000					$181,100

Statement of Retained Earnings
Beginning Retained Earnings	$440,000	$200,000	[E]	200,000	[ADJ]	73,400	$513,400
Net Income	152,000	76,000					181,100
Dividends	(92,000)	(28,000)			[C]	28,000	(92,000)
Ending retained Earnings	$500,000	$248,000					$602,500

Balance Sheet
Assets
Cash	$80,000	$40,000					$120,000
Accounts receivable	88,000	80,000					168,000
Inventory	240,000	120,000					360,000
Equity investment	512,000		[ADJ]	73,400	[E]	440,000	0
			[I_gain]	11,400	[A]	156,800

PPE, net	400,000	192,000	[A]	32,000	[D]	6,400	608,100
			[I_dep]	1,900	[I_gain]	11,400
Other Assets	80,000	148,000					228,000
Licenses		20,000	[A]	28,800	[D]	14,400	34,400
Goodwill			[A]	96,000			96,000
Total Assets	$1,400,000	$600,000					1,614,500

Liabilities and Stockholder's Equity
Accounts payable	$200,000	$24,000					$224,000
Accrued liabilities	100,000	36,000					136,000
Notes Payable	120,000	52,000					172,000
Common stock	200,000	48,000	[E]	48,000			200,000
APIC	280,000	192,000	[E]	192,000			280,000
EOY Retained Earnings	500,000	248,000					602,500

Total liabilities and equity	$1,400,000	$600,000		$732,300		$732,300	$1,614,500