Posted: November 17th, 2015

EOY questions

Assume that on January 1 2004, a parent company acquired a 70% interest in its subsidiary for a purchase price that was $125,000 over the book value of the subsidiary stockholders equity on the acquisition date. The parent allocated the excess to the following asset [A]

[A] Asset PPE           Initial Fair Value 125,000       Useful life 20 years

Assume that the parent sells inventor to the subsidiary (downstream) which includes that inventory in products that it, ultimately , sells to customers outside of the controlled group. You have compiled the following data as of 2015 and 2016

2015: Transfer price for inventory sale 97, 280, cost of good sold (72, 780) gross profit 24, 500, % inventory remaining 25%, gross profit deferred 6,125.

2016: Transfer price for inventory sale 133, 4000, Cost of goods sold, (105,400) gross profit 28,00 % inventory remaining, 35, gross profit deferred 9800.

EOY receivable / payable  2015: 110,000             2016: 15,00

Income Statement Parent:

Sales 5,430,000 , Cost of goods sold ( 3,801,000) Gross profit 1, 629,000, equity investment income 137,855, Operating expenses ( 1,031, 700) Net income 735, 155

Income statement Subsidiary:

Sales 638, 650, Cost of goods sold (300,150) gross profit, 338,500, Operating expenses (130,065) Net income 208,435.

Statement of retained earnings parent:

BOY retained earnings 2, 728, 032, net income, 735,155, dividends (136,291) EOY retained earnings 3, 326, 896

Subsidiary BOY retained earning, 258, 463, net income 208, 435, dividends( 7004) EOY retained earnings 459, 894

Balance sheet Parent: Cash 607, 551, Accounts receivable 695, 040, Inventory 1, 053, 420, Equity investment 434, 652, PPE, net 5067276,  total 7,857, 939. Current liabilities780, 291, long term liabilities 2, 203, 202, common stock, 887, 805, APIC 659, 745, Retained earning 3,326, 896 total 7,857, 939

Subsidiary:  Cash 276,803, Accounts receivables 116, 058, Inventory 149, 075, PPE Net 275, 805 total 817, 740 Current liabilities 116, 058, long term liabilities, 116, 750., common stock 33,350, APIC 41,688, retained earnings, 459, 894, total 817, 740

Required

a) Compute the EOY equity investment balance of $434,652 (4 years subsequent to the acquisition)

b) compute the EOY non controlling interest equity balance

c) Prepare the consolidation journal  (C-E-A-D-I) entries