Question

Assume that on 1/1/X0, a parent company acquires a 70% interest in its subsidiary for a price at $480,000 over book value. The excess is assigned as follows:

Asset	Fair Value	Useful Life
Patent	$320,000	8 years
Goodwill	160,000	Indefinite

70% of the goodwill is allocated to the parent.

Included in the attached Excel spreadsheet are the pre-consolidation financial statements for both the parent and the subsidiary.

Submission Requirements:

Using the ACT470_Mod08-Portfolio_Option01.xlsx Excel spreadsheet in the Module 8 folder:

Prepare the consolidated financial statements at 12/31/X6 by placing the appropriate entries in their respective debit/credit column cells.

Indicate, in the blank column cell to the left of the debit and credit column cells if the entry is a [C], [E], [A], [D] or [I]entry.

Use Excel formulas to derive the Consolidated column amounts and totals.

Using the “Home” key in Excel, go to the “Styles” area and highlight the [C], [E], [A], [D] or [I]entry cells in different shades.

			Consolidation Entries
	Parent	Subsidiary		Dr		Cr	Consolidated
Income Statement:
Sales	6,000,000	2,000,000					0
Cost of Goods sold	-4,000,000	-1,200,000					0
Gross profit	2,000,000	800,000					0
Income (loss) from subsidiary	112,000						0
Operating expenses	-1,500,000	-600,000					0
Net Income	612,000	200,000					0
Consolidated NI attrib to NCI							0
Consolidated NI attrib to CI							0
Statement of Ret Earnings:
BOY retained earnings	1,978,000	970,000					0
Net income	612,000	200,000					0
Dividends	-190,000	-100,000					0
EOY retained earnings	2,400,000	1,070,000					0
Balance Sheet:
Cash	200,000	120,000					0
Accounts receivable	600,000	400,000					0
Inventory	800,000	880,000					0
Equity investment	1,400,000						0
PPE, net	2,000,000	1,200,000					0
Patent							0
Goodwill							0
	5,000,000	2,600,000					0
Current liabilities	500,000	200,000					0
Long-term liabilities	1,100,000	600,000					0
Common stock	600,000	280,000					0
APIC	400,000	450,000					0
Retained earnings	2,400,000	1,070,000					0
Noncontrolling interest							0
	5,000,000	2,600,000		0		0	0

Answer 1

			Consolidation Entries
	Parent	Subsidiary	Dr	Cr	Consolidated
Income Statement:
Sales	6,000,000	2,000,000	-	-	8,000,000
Cost of Goods sold	(4,000,000)	(1,200,000)	-	-	(5,200,000)
Gross profit	2,000,000	800,000	-	-	2,800,000
Income (loss) from subsidiary	112,000	-	-	-	112,000
Operating expenses	(1,500,000)	(600,000)	-	-	(2,100,000)
Net Income	612,000	200,000	-	-	812,000
Consolidated NI attrib to NCI				60,000	(60,000)
Consolidated NI attrib to CI	612,000	200,000	-	60,000	752,000
Statement of Ret Earnings:
BOY retained earnings	1,978,000	970,000	-	-	2,948,000
Net income	612,000	200,000	-	-	812,000
Dividends	(190,000)	(100,000)	-	-	(290,000)
Transferred to NCI	-	-	-	60,000	(60,000)
EOY retained earnings	2,400,000	1,070,000	-	60,000	3,410,000
Balance Sheet:
Cash	200,000	120,000	-	-	320,000
Accounts receivable	600,000	400,000	-	-	1,000,000
Inventory	800,000	880,000	-	-	1,680,000
Equity investment	1,400,000	-	-	1,400,000	-
PPE, net	2,000,000	1,200,000	-	-	3,200,000
Patent			280,000	-	280,000
Goodwill			160,000	-	160,000
Total Assets	5,000,000	2,600,000	440,000	1,400,000	6,640,000
Current liabilities	500,000	200,000	-	-	700,000
Long-term liabilities	1,100,000	600,000	-	-	1,700,000
Common stock	600,000	280,000	-	280,000	600,000
APIC	400,000	450,000	-	-	850,000
Retained earnings	2,400,000	1,070,000	-	1,145,000	2,325,000
Noncontrolling interest	-	-	465,000	-	465,000
Total liabilities	5,000,000	2,600,000	465,000	1,425,000	6,640,000