Question

In: Accounting

Determining ending consolidated balances in the third year following the acquisition—Equity method Assume that your company...

Determining ending consolidated balances in the third year following the acquisition—Equity method

Assume that your company acquired a subsidiary on January 1, 2017. The purchase price was $800,000 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
Patent $500,000 10 years
Goodwill 300,000 Indefinite
$800,000

The [A] assets with a useful life have been amortized as part of the parent’s equity method accounting. The financial statements of the parent and its subsidiary for the year ended December 31, 2019, are as follows:

Parent Subsidiary Parent Subsidiary
Income statement: Balance sheet:
Sales $3,000,000 $900,000 Assets
Cost of goods sold (2,000,000) (500,000) Cash $700,000 $100,000
Gross profit 1,000,000 400,000 Accounts receivable 910,000 200,000
Equity income 150,000 Inventory 1,200,000 300,000
Operating expenses (450,000) (200,000) Equity investment 1,590,000
Net income $700,000 $200,000 Property, plant and equipment (PPE), net 3,000,000 800,000
$7,400,000 $1,400,000
Statement of retained earnings:
BOY retained earnings $2,500,000 $ 400,000 Liabilities and stockholders’ equity
Net income 700,000 200,000 Accounts payable $400,000 $90,000
Dividends (200,000) (40,000) Accrued liabilities 500,000 120,000
Ending retained earnings $3,000,000 $ 560,000 Long-term liabilities 1,000,000 250,000
Common stock 500,000 300,000
APIC 2,000,000 80,000
Retained earnings 3,000,000 560,000
$7,400,000 $1,400,000

At what amount will the following accounts appear in the consolidated financial statements for the year ended December 31, 2019?

Account

Amount

a. Cost of goods sold

Answer

b. Equity income

Answer

c. Operating expenses

Answer

d. Cash

Answer

e. Equity investment

Answer

f. PPE, net

Answer

g. Patent

Answer

h. Goodwill

Answer

i. Common Stock

Answer

j. Retained Earnings

Answer

Solutions

Expert Solution

Sollution:- Consolidated Financial Statement

S.no Particulars Parent subsidiary consolidated
a Cost of goods sold $ 2,000,000 $ 500,000 $    2,500,000
b Equity income $     150,000 $             -   $       150,000
c Operating expenses $     450,000 $ 200,000 $       650,000
d Cash $     700,000 $ 100,000 $       800,000
e Equity investment $ 1,590,000 $             -   $    1,590,000
f PPE,Net $ 3,000,000 $ 800,000 $    3,800,000
g Patent $     500,000 $             -   $       500,000
h Goodwill $     300,000 $             -   $       300,000
i Common stock $     500,000 $ 300,000 $       800,000
j Retained earnings $ 3,000,000 $ 560,000 $    3,560,000

Note:- I did't use negative figures in the cosolidated statement.


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