Answer Happy

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 2015 and 2016: Inventory Intercompany Subsidiary Net Income Remaining at Receivable End of Year Inventory Sales Gross Profit % (Payable) $120,000 2016 $2,400,000 34% 15% $360,000 $240,000 2015 $1,920,000 30% 18% $96,000 Assume that inventory not remaining at the end of the year was sold outside of the consolidated group during the year. The subsidiary paid $1,800,000 in dividends during 2016. a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment? $0 b. Prepare the required [1] consolidation entries for 2016. Consolidation Journal Description Credit 0 [Icogs] + ◆ 0 To recognize prior year profit on intercompany sales. [Isales] ◆ 0 + 0 To eliminate intercompany sales. [Icogs] + 0 ◆ 0 To defer current period profit on intercompany sales. [Ipay] ♦ 0 ◆ 0 To eliminate intercompany receivables/payables. Debit 0 0 0 0 0 0 0 0