Chapter 4 I Consolidated Financial Statements and Intercompany Transactions 201 prehensive consolidation subsequent to date of acquisition, AAP computation, g oodwill, m and downstream intercompany inventory profits, downstream intercompany depreciable asset gain-Cost method A pare $1.536,000. On this date, the bal Stock. S144,000, additional paid-in capital, $576,000, and Retained Earnings, $282.000. nt compan y acquired 100 percent of the stock of a subsidiary company on Janua ry ances of the subsidiary's stockholders' equity accounts were Common On January 1, 2013 , the subsidiary's recorded book values were equal to fai t five: (1) accounts receivable had a book value of $192,000 and a fair value of $180,000, (2) oroperty, plant& equipment, net had a book value of $432,000 and a fair value of $480,000, (3) li recorded cus with a book value of $36,000 and a fair value of $132,000, (4) a previously un st had a book value of $0 and a fair value of $60,000, and (5) notes paya S46,000 and a fair value of $40, 000. Both companies use the FIFO inventory method and sell all of their inventories at least once per year. The year-end net balance of accounts rece ivable are collecte in the following year. On the acquisition date, the subsidiary's property, plant & equipment, net had a remaining useful life of 16 years, the licenses had a remaining useful life of 10 years, the customer list remaining useful life of 5 years and notes payable had a remaining term of 5 years. On January 1, 2014, the parent sold a building to the subsidiary for $240,000. On this date, the build ing was carried on the parent's books (net of accumulated depreciation) at $192,000. Both companies esti- mated that the building has a remaining life of 8 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 28 per cent of selling price (regardless of the direction of the sale). During 2016, intercompany sales amount to $120,000, of which $72,000 of merchandise remains in the ending inventory of the subsidiary. On Decem ber 31, 2016, $38,400 of these intercompany sales remained unpaid. Additionally, t 31, 2015 inventory includes $48,000 of merchandise purchased in the preceding year from the subsidiary. During 2015, intercompany sales amount to $96,000, and on December 31, 2015, $28,800 of these inter- company sales remained unpaid The parent accounts for its investment in the subsidiary using the cost method. The pre-consolidation financial statement information for the two companies for the year ended December 31, 2016 are provided Parent Subsidiary Subsidi ary Balance shee Income statement Sales $2,376,000 $1,128,000 Assets (1,296,000) 1,080,000 (669,600) Cash 458,400 Accounts receivable. (48,000) Inventory (12,000) PPE, net (252,000) Other assets $ 216,000 144,000 288,000 Deprec. & amort. expense Operating expenses Interest expense Total 672,000 1,536,000 816,000 312,000 (720,000) (192,000) Equity investment 40,800) (832,800) ncome (loss) from subsidiary $333,600 206,400 Total assets. $3,840,000 $1,824,000 Liabilities and stockholders' equity Accounts payable $ 420,000 $129,600 Statement of retained earnings: BOY retained earnings $1,320,000 600,000 Accrued liabilities 206,400 Notes payable (86,400) Common stock 333,600 144,000 Ending retained earnings $1,380,000 720,000 APIC 1,008,000 576,000 Retained earnings Total liabilities and equity 1,380,000 $3,840,000 $1,824,000 regate and document the activity for the 100% Acquisition Accounting Premium (AAP) Calculate and organize the profits and losses on intercompany transactions and balances Compute the amount of the beginning of year [ADJ] adjustment necessary for the consolidation b. C. e financial statements for the year ended December 31, 2016 Complete the consolidating entries according to the [ADJ] and C-E-A-D-I sequence and complete the consolidation worksheet. Chapter 4 I Consolidated Financial Statements and Intercompany Transactions 201 prehensive consolidation subsequent to date of acquisition, AAP computation, g oodwill, m and downstream intercompany inventory profits, downstream intercompany depreciable asset gain-Cost method A pare $1.536,000. On this date, the bal Stock. S144,000, additional paid-in capital, $576,000, and Retained Earnings, $282.000. nt compan y acquired 100 percent of the stock of a subsidiary company on Janua ry ances of the subsidiary's stockholders' equity accounts were Common On January 1, 2013 , the subsidiary's recorded book values were equal to fai t five: (1) accounts receivable had a book value of $192,000 and a fair value of $180,000, (2) oroperty, plant& equipment, net had a book value of $432,000 and a fair value of $480,000, (3) li recorded cus with a book value of $36,000 and a fair value of $132,000, (4) a previously un st had a book value of $0 and a fair value of $60,000, and (5) notes paya S46,000 and a fair value of $40, 000. Both companies use the FIFO inventory method and sell all of their inventories at least once per year. The year-end net balance of accounts rece ivable are collecte in the following year. On the acquisition date, the subsidiary's property, plant & equipment, net had a remaining useful life of 16 years, the licenses had a remaining useful life of 10 years, the customer list remaining useful life of 5 years and notes payable had a remaining term of 5 years. On January 1, 2014, the parent sold a building to the subsidiary for $240,000. On this date, the build ing was carried on the parent's books (net of accumulated depreciation) at $192,000. Both companies esti- mated that the building has a remaining life of 8 years on the intercompany sale date, with no salvage value. Each company routinely sells merchandise to the other company, with a profit margin of 28 per cent of selling price (regardless of the direction of the sale). During 2016, intercompany sales amount to $120,000, of which $72,000 of merchandise remains in the ending inventory of the subsidiary. On Decem ber 31, 2016, $38,400 of these intercompany sales remained unpaid. Additionally, t 31, 2015 inventory includes $48,000 of merchandise purchased in the preceding year from the subsidiary. During 2015, intercompany sales amount to $96,000, and on December 31, 2015, $28,800 of these inter- company sales remained unpaid The parent accounts for its investment in the subsidiary using the cost method. The pre-consolidation financial statement information for the two companies for the year ended December 31, 2016 are provided Parent Subsidiary Subsidi ary Balance shee Income statement Sales $2,376,000 $1,128,000 Assets (1,296,000) 1,080,000 (669,600) Cash 458,400 Accounts receivable. (48,000) Inventory (12,000) PPE, net (252,000) Other assets $ 216,000 144,000 288,000 Deprec. & amort. expense Operating expenses Interest expense Total 672,000 1,536,000 816,000 312,000 (720,000) (192,000) Equity investment 40,800) (832,800) ncome (loss) from subsidiary $333,600 206,400 Total assets. $3,840,000 $1,824,000 Liabilities and stockholders' equity Accounts payable $ 420,000 $129,600 Statement of retained earnings: BOY retained earnings $1,320,000 600,000 Accrued liabilities 206,400 Notes payable (86,400) Common stock 333,600 144,000 Ending retained earnings $1,380,000 720,000 APIC 1,008,000 576,000 Retained earnings Total liabilities and equity 1,380,000 $3,840,000 $1,824,000 regate and document the activity for the 100% Acquisition Accounting Premium (AAP) Calculate and organize the profits and losses on intercompany transactions and balances Compute the amount of the beginning of year [ADJ] adjustment necessary for the consolidation b. C. e financial statements for the year ended December 31, 2016 Complete the consolidating entries according to the [ADJ] and C-E-A-D-I sequence and complete the consolidation worksheet