topic intercompany sale of land lo 2 3 parent acquired subsidiary on january 1 2013a 4314387

topic intercompany sale of land lo 2 3 parent acquired subsidiary on january 1 2013a 4314387

 

Topic: Intercompany Sale of Land

LO: 2

3. Parent acquired Subsidiary on January 1, 2013at a price $150,000 in excess of book value. Of that excess, $100,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill.  In 2014, Subsidiary sold to Parent land having a book value of $70,000 for a total price of $100,000.

Financial statements of the two companies for the year ended December 31, 2015are presented below.

 

Parent

Subsidiary

Sales revenue

  $1,500,000

$375,000

Cost of goods sold

(1,050,000)

(225,000)

Gross profit

450,000

150,000

Operating expenses

   (285,000)

(97,500)

Equity income

42,500

             _

Net Income

$   207,500

$  52,500

Retained Earnings, 1/1/15

   $   753,600

$193,750

Net income

207,500

52,500

Dividends

    ( 41,688)

(6,824)

Retained Earnings, 12/31/15

$   919,412

$239,426

Cash and receivables

$   342,783

$208,212

Inventory

291,000

111,750

Equity investment

385,676

Property, plant &equipment (Net) 

  1,399,800

206,750

Total Assets

$2,419,259

$526,712

Accounts payable

$   173,144

$  44,760

Accrued liabilities

199,202

61,276

Notes payable

  750,000

125,000

Common stock

245,250

25,000

Additional paid-in capital

   132,251 

31,250

Retained Earnings, 12/31/15

919,412

239,426

Total Liabilities and Equities

$2,419,259

$526,712

 

Required:

a.Prepare a schedule showing the computation of Equity Income on Parent's books for 2015.

b.Prepare a schedule showing the computation of Equity Investment on Parent's books at December 31, 2015.

c. Prepare the consolidation entries for 2015.

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