CLICK HERE TO REVIEW LEARNING OBJECTIVES QUESTION 1 Tries remaining:1 Marked out
ID: 2339421 • Letter: C
Question
CLICK HERE TO REVIEW LEARNING OBJECTIVES QUESTION 1 Tries remaining:1 Marked out of 10.00 Flag question Computing the amount of equity income and preparing [U] consolidation journal entries Assume that a wholly owned subsidiary sells inventory to the parent company. The parent company, 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 % Inventory Net Inventory Gross Remaining at Receivable Profit % 2013 $500,000 75,000 30% 2012 $400,000 $50,000 28% Income Sales End of Year (Payable) $25,000 $20,000 1096 g% Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. Assume the parent company uses the full equity method to account for its subsidiary. 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? 625,000 b. Prepare the required 1 consolidation journal entries for 2013. Consolidation Worksheet Description Debit Credit [Icogs] Investment in subsidiary Cost of goods sold [lsales] Sales Cost of goods sold [lcogs Cost of goods sold [lpay Accounts payable Accounts receivable CheckExplanation / 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 $500,000 Add: Gross Profit of Inventory included in 2012( 50,000*0.28*0.09) $1,260 Less : Gross Profit of Inventory Included in 2013 (75,000*.1*.3) $2,250 Equity Income in its pre-consolidation income statement for year ending 2013 $499,010 b. Prepare the required [I] consolidation journal entries for 2013. Investment in Subsidiary $1,260 To Cost of Goods Sold $1,260 Sales $75,000 To Cost of Goods Sold $75,000 Cost of Goods Sold $2,250 To Inventory $2,250 Accounts Payable $25,000 To Accounts Recievable $25,000