Homework SourseParent acquired Subsidiary on January 2 2015 at a price 2500
Parent acquired Subsidiary on January 2, 2015, at a price $250,000 in excess of book value. Of that excess, $170,000 was allocated to an unrecorded Customer List with a 10-year life, with the remainder to Goodwill. The parent uses the equity method to account for its investment in its subsidiary.
On January 2, 2018, Subsidiary sold equipment to Parent for $80,000. The equipment had a cost of $90,000 and accumulated depreciation of $37,000. The remaining life of the equipment was estimated at 6 years. Financial statements for the two companies for the year ended December 31, 2019, are presented below.
Required:
a. Prepare the journal entries on the books of Parent and Subsidiary to record the equipment sale.
b. Compute the amount of unrealized gain at January 1, 2019.
c. Prepare entries required under the equity method on Parent\'s pre-consolidation books for 2019.
d. Prepare the consolidation entries for 2019.
| Parent | Subsidiary | |
| Sales Revenue | $ 6,500,000 | $ 2,000,000 |
| Cost of Goods Sold | (4,800,000) | (1,200,000) |
| Gross Profit | 1,700,000 | 800,000 |
| Operating Expenses | (840,000) | (470,000) |
| Income (loss) from Subsidiary | 317,500 | |
| Net Income | $ 1,177,500 | $ 330,000 |
Solution
Solution(a): Following are the required journal entries:
Solution(b): Calculation of unrealised gain:
Solution (c): Following are the required journal entries (under equity method):
Notes: Amortization = 170,000/10 = $17,000
Solution(d): Following are the required journal entries for 2019:
| Particulars | Amount($) Debit | Amount($) Credit |
| Cash A/c | 80,000 | |
| Accumulated depreciation A/C | 37,000 | |
| Equipment A/C | 90,000 | |
| Gain on sale A/C | 27,000 | |
| (To record sale of equipment on subsidiary books) | ||
| Equipment A/C | 80,000 | |
| Cash A/C | 80,000 | |
| (To record equipment Purchased by parent) |
