Question

Assume that your company acquired a subsidiary on January 1, 2012. The purchase price was $700,000...

Assume that your company acquired a subsidiary on January 1, 2012. The purchase price was $700,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets:



[A] Asset

Original
Amount
Original
Useful Life
(years)
Property, plant and equipment (PPE), net $350,000 20
Goodwill 350,000 Indefinite
$700,000

The AAP asset relating to undervalued PPE with a 20-year useful life has been depreciated as part of the parent's equity method accounting. The financial statements of the parent and its subsidiary for the year ended December 31, 2013, are as follows:

Parent Subsidiary Parent Subsidiary
Income statement: Balance sheet:
Sales $5,500,000 $1,205,000 Assets
Cost of goods sold (3,960,000) (720,000) Cash $928,050 $314,200
Gross profit 1,540,000 485,000 Accounts receivable 1,403,000 278,400
Equity income 155,500 Inventory 2,134,000 357,600
Operating expenses (825,000) (312,000) Equity investment 1,612,800
Net income $870,500 $173,000 Property, plant and equipment (PPE), net 11,365,200 661,600
$17,443,050 $1,611,800
Statement of retained earnings:
BOY retained earnings $3,711,800 $620,000 Liabilities and stockholders' equity
Net income 870,500 173,000 Accounts payable $805,200 $114,400
Dividends (176,100) (25,200) Accrued liabilities 957,000 149,600
Ending retained earnings $4,406,200 $767,800 Long-term liabilities 7,000,000 400,000
Common stock 507,450 80,000
APIC 3,767,200 100,000
Retained earnings 4,406,200 767,800
$17,443,050 $1,611,800

At what amount will the following accounts appear on the consolidated financial statements?

Note: Do not use negative signs with your answers.

a. Sales
b. Equity income
c. Operating expenses
d. Accounts receivable
e. Equity investment
f. Property plant and equipment (PPE) net
g. Goodwill
h. Common stock
i. Retained earnings

Homework Answers

Answer #1
No. Particulars Parent ($) Subsidiary ($) Consolidated ($)
a Sales 5500000 1205000 6705000
b Equity Income 155500 - 155500
c Operating expenses 825000 312000 1137000
d Accounts receivable 1403000 278400 1681400
e Equity investment 1612800 - 912800
($1612800 - $700000 purchase price)
f Property, plant and equipment (PPE) net 11365200 661600 12026800
g Goodwill 350000 - 0
(Goodwill is eliminated)
h Common stock 507450 80000 507450
(Common stock of only parent company is shown)
i Retained earnings 4406200 767800 5174000

(If there are any questions, kindly let me know in comments. If the solution is to your satisfaction,a thumbs up would be appreciated. Thank You)

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