Computing the amount of equity income and preparing [l consolidation journal ent

Question

Computing the amount of equity income and preparing [l consolidation journal entries - Equity method Assume that a parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2012 and 2013: Subsidiary Gross Profit Net Inventory on Unsold Receivable Sales Inventories (Payable) 2,000 $17,000 $21,000 2012 $200,000 $42,000 $14,500 $16,000 Income 2013 $300,000 $5 Assume that inventory not remaining at the end of the year was sold outside of the consolidated group. a. How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity method of accounting for its Equitylnvestment? Assume the parent company uses the full equity method to account for its subsidiary $ 0 b. Prepare the required [I] consolidation journal entries for 2013. Consolidation Spreadsheet Description Debit Credit [lccgs] lcogs lpay]

Explanation / Answer

a.How much Equity Income should the parent report in its pre-consolidation income statement the year ending 2013 assuming that it uses the equity method of accounting for its Equity Investment? Subsidiary Income for 2013 $300,000 Add: Deffered Profit for 2012 $14,500 Less : Deferred Profit for 2013 $17,000 Equity Income in its pre-consolidation income statement for year ending 2013 $297,500 b. Prepare the required [I] consolidation journal entries for 2013. Investment in Subsidiary $14,500 To Cost of Goods Sold $14,500 Sales $52,000    To Cost of Goods Sold $52,000 Cost of Goods Sold $17,000 To Inventory $17,000 Accounts Payable $21,000 To Accounts Recievable $21,000

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