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Inferring consolidation entries from consolidated financial statementsCost method Assume a parent company acquired a subsidiary on January 1, 2012. The purchase price was $1,332,000 in excess of the subsidiarys 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
Property, plant and equipment (PPE), net	$300,000	20 years
Patent	432,000	12 years
Goodwill	600,000	Indefinite
	$1,332,000

The parent company uses the cost method of pre-consolidation Equity Investment bookkeeping. The Goodwill asset has been tested annually for impairment and has not been found to be impaired. Selected accounts from the parent, subsidiary, and consolidated financial statements for the year ended December 31, 2016, are as follows:

	Parent	Subsidiary	Consolidated
Income statement
Sales	$9,075,000	$2,010,000	11,085,000
Cost of goods sold	(6,534,000)	(1,188,000)	(7,722,000)
Gross profit	2,541,000	822,000	3,363,000
Investment income	70,800	-	-
Operating expenses	(1,361,280)	(514,800)	(1,927,080)
Net income	$1,250,520	$307,200	$1,435,920
Statement of retained earnings
BOY retained earnings	6,328,440	1,053,000	6,604,440
Net income	1,250,520	307,200	1,435,920
Dividends	(316,440)	(70,800)	(316,440)
Ending retained earnings	$7,262,520	$1,289,400	$7,723,920
Balance sheet
Assets
Cash	1,709,760	541,200	2,250,960
Accounts receivable	2,686,800	459,600	3,146,400
Inventory	3,520,200	589,800	4,110,000
Equity investment	2,202,000	-	-
Property, plant & equipment, net	12,752,640	1,091,400	14,069,040
Patent list			252,000
Goodwill	-	-	600,000
	$22,871,400	$2,682,000	$24,428,400
Liabilities and stockholders' equity	-	-
Accounts payable	1,328,640	188,760	1,517,400
Accrued liabilities	1,578,840	246,840	1,825,680
Long-term liabilities	5,550,000	660,000	6,210,000
Common stock	845,520	132,000	845,520
APIC	6,305,880	165,000	6,305,880
Retained earnings	7,262,520	1,289,400	7,723,920
	$22,871,400	$2,682,000	$24,428,400

For the year ended December 31, 2016, reconcile the parent companys pre-consolidation net income of $1,250,520 to the consolidated balance of $1,435,920.

Do not use negative signs with your answers.

Parent Income (cost method)
Deduct: p% of subsidiary dividends
Answerp% of subsidiary net incomep% of AAP amortization for year
Answerp% of subsidiary net incomep% of AAP amortization for year
Parent Income (equity method)

b)

What was the subsidiarys retained earnings balance on the acquisition date? You should assume the Common Stock and APIC have not changed since the acquisition date. (Hint: You will need to use an account that does not change after the acquisition date.)

c)

Provide the consolidation entries for the year ending December 31, 2016.

Consolidation Journal
	Description	Debit	Credit
[ADJ]	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
[C]	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
[E]	Common Stock	Answer	Answer
	APIC	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
[A]	PPE, net	Answer	Answer
	Patent	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
[D]	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
	BOY Retained Earnings - ParentBOY Retained Earnings - SubsidiaryDividendsEquity investmentGoodwillInvestment incomeOperating expensesPPE, net	Answer	Answer
	Patent	Answer	Answer

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