Parent acquired Subsidiary on January 1 2016 at a price 3000

Parent acquired Subsidiary on January 1, 2016, at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. The parent uses the equity method to account for its investment in its subsidiary.

In 2017, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $145,000.

Financial statements of the two companies for the year ended December 31, 2018, are presented below.

Required:

a. Prepare a schedule showing the computation of Income (loss) from subsidiary on the Parent\'s pre-consolidation books for 2018.

b. Prepare a schedule showing the computation of Equity Investment on the Parent\'s pre-consolidation books at December 31, 2018.

c. Prepare the consolidation entries for 2018.

	Parent	Subsidiary
Sales Revenue	$ 2,500,000	$ 525,000
Cost of Goods Sold	(1,750,000)	(345,000)
Gross Profit	750,000	180,000
Operating Expenses	(475,000)	(102,500)
Income (loss) from Subsidiary	57,500
Net Income	$ 332,500	$ 77,500

Ans:

a. Schedule showing computation of income (loss) on subsidiary on the parent\'s pre-consolidation books for 2018

Sales revenue 525,000

Less: Cost of Goods sold 345,000

Gross Profit 180,000

Less: Operating Expeses 102,500

Net Income 77,500

Parent acquired Subsidiary on January 1, 2016, at a price $300,000 in excess of book value. Of that excess, $200,000 was allocated to an unrecorded patent with

Parent acquired Subsidiary on January 1 2016 at a price 3000

Solution

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