AC C TG 37

MIDTERM EXAM REMO VAL

O n Ma y 1, 2020, Pa re n t C o m p a n y a c q uire d 80% o f Su b sid ia ry C o m p a n y in e xc h a n g e fo r 5, 400 sh a re s o f P15 p a r

c o m m o n sto c k h a vin g a m a rke t va lu e o f P250, 000. Pa re n t a n d Su b sid ia ry c o n d e n se d b a la n c e sh e e ts w e re a s
fo llo w s:
Pa re n t C o m p a n y a nd Su b sid ia ry C o m p a n y
Ba la n c e Sh e e ts a t Ja n u a ry 1, 2020
(b e fo re c o m b in a tio n )

Pa re n t Su b sid ia ry
Co m p a ny Co mp a ny
Asse ts
C a sh P 300, 500 P 150, 900
Ac c o u n ts re c e iva b le (n e t) 67,850 20, 100
In ve n to rie s 35, 500 12, 100
Sto re Eq u ip m e n t - 10 yrs 280, 000 50, 000
Ac c u m u la te d De p re c ia tio n - Sto re e q p t. 112,000 15,000
De live ry Eq u ip m e n t - 8 yrs 120,000 44,000
Ac c u m u la te d De p re c ia tio n – De l e q p t. 45,000 16,500
Pa te n ts ______- 15, 000
To ta l a sse ts P? P?
Lia b ilitie s a n d sto c kh o ld e rs’ e q u ity
Ac c o u n ts p a ya b le P 60, 000 P 40, 600
Bo n d s p a ya b le , 15% 109, 700 -
C o m m o n sto c k, P5 p a r 300, 000 170, 000
Ad d itio n a l p a id -in c a p ita l 24,900 35, 000
Re ta ine d e a rn in g s ? ?
To ta l lia b ilitie s a n d Sto c kh o ld e rs’ e q u ity ? ?
At th e d a te o f a c q u isitio n , a ll a sse ts a n d lia b ilitie s o f Su b sid ia ry C o m p a n y h a ve b o o k va lu e a p p ro xim a te ly e q u a l
to th e ir re sp e c tive m a rke t va lue s e xc e p t th e fo llo w in g a s d e te rm ine d b y a p p ra isa l a s fo llo w s:

In ve n to rie s (FIFO m e th o d ) P14, 100

Sto re Eq u ip m e n t 45,000
De live ry Eq u ip m e n t 25,000
Pa te n ts (re m a in in g life 10 ye a rs) 20, 000
G o o d w ill im p a irm e n t u n d e r p a rtia l g o o d w ill : 2020,
10,000 ; 2021, 15,000

Divid e n d s d e c la re d a s fo llo w s: Pa re n t Su b sid ia ry

 In ve n to rie s (FIFO m e th o d ) P14, 100
Sto re Eq u ip m e n t 45,000
De live ry Eq u ip m e n t 25,000
Pa te n ts (re m a in in g life 10 ye a rs) 20, 000
G o o d w ill im p a irm e n t u n d e r p a rtia l g o o d w ill : 2020,
10,000 ; 2021, 15,000

Divid e n d s d e c la re d a s fo llo w s: Pa re n t Su b sid ia ry

2020 70,000 32,000

2021 85,000 50,000

Use the a b o ve info rm a tio n ( d ivid e nd s d e c la re d ) fo r c o st a nd e q uity m o d e l.

Re q u ire d :

1. Pre p a re w o rkin g p a p e r fo r ye a r 1 u n d e r p a rtia l a n d fu ll g o o d w ill a ssu m in g c o st m o d e l is

u se d . ( Write th e jo urn a l e n trie s a n d e lim in a tio n e n trie s a t th e b a c k o f th e w o rksh e e t).
( 15 p ts inc lud ing jo urna l e ntrie s a nd e lim ina tio n e ntrie s)
 C o m p a ra tive se p a ra te c o m p a n y in c o m e sta te m e n ts fo r th e se a ffilia te d c o rp o ra tio n s fo r 2020 a n d 2021 a re a s
fo llo w s:

Pa re n t Su b sid ia ry Pa re n t Su b sid ia ry
C o rp o ra tio n C o rp o ra tio n C o rp o ra tio n C o rp o ra tio n
Sa le s P2, 600, 000 P 1,530, 000 P3, 400, 000 P 2, 500, 000
Divid e n d in c o m e ? - ? -

C o st o f sa le s P1, 350, 000 P 650, 000 P1, 900, 000 P 780, 000
O p e ra tin g e xp e n se s 550, 000 420, 000 690, 000 540, 000
Ne t in c o m e ? ? ? ?

2020 2021

1. Usin g th e sa m e in fo rm a tio n a b o ve , Pre p a re w o rkin g p a p e r fo r ye a r 1 u n d e r p a rtia l AND

full g o o d w ill a ssu m in g e q uity m e tho d is u se d . ( Write th e jo u rn a l e n trie s a n d e lim in a tio n
e n trie s a t th e b a c k o f th e w o rksh e e t). ( 15 p ts inc lud ing jo urna l e ntrie s a nd e lim ina tio n
e ntrie s).

2020 2021

Pa re n t Su b sid ia ry Pa re n t Su b sid ia ry
C o rp o ra tio n C o rp o ra tio n C o rp o ra tio C o rp o ra tio n
n
Sa le s P3, 500, 000 P 2,430, 000 P4, 400, 000 P 3, 600, 000
In ve stm e n t in c o m e ? ?

C o st o f sa le s P1, 800, 000 P 980, 000 P2, 200, 000 P 1,400, 000
O p e ra tin g e xp e n se s 620, 000 400, 000 890, 000 670, 000
Ne t in c o m e ? ? ? ?
 C o rp o ra tio n C o rp o ra tio n C o rp o ra tio C o rp o ra tio n
n
Sa le s P3, 500, 000 P 2,430, 000 P4, 400, 000 P 3, 600, 000
In ve stm e n t in c o m e ? ?

C o st o f sa le s P1, 800, 000 P 980, 000 P2, 200, 000 P 1,400, 000
O p e ra tin g e xp e n se s 620, 000 400, 000 890, 000 670, 000
Ne t in c o m e ? ? ? ?

Ad d itio n a l in fo rm a tio n :

60% o f p a re n t a n d su b sid ia ry p u rc h a se s w e re o n a c c o u n t. All sa le s w e re o n c a sh b a sis.

Du rin g 2020, th e p a re n t so ld 10% o f its in ve n to ry to su b sid ia ry. Th e sa m e p ro fit p e rc e n ta g e is u se d

b y th e p a re n t in se llin g its m e rc h a n d ise to o u tsid e r. Te n p e rc e nt ( 10%) o f th is m e rc h a n d ise
re m a in e d o n h a n d a t ye a r e n d b y th e sub sid ia ry. O n Ma y 1 ,2020, so ld to su b sid ia ry o n e o f its
d e live ry e q u ip m e n t th a t c o st 70,000 a t a g a in o f P 28,000. A la n d th a t
w a s p u rc h a se d o n O c to b e r 1, th a t c o st P 80,000 w a s a lso so ld to su b sid ia ry o n De c e m b e r
1, a t a g a in o f P 18,000.

Th e su b sid ia ry so ld 25% o f its m e rc h a n d ise to p a re n t c o m p a n y. Eig ht p e rc e nt ( 8%) o f th is

m e rc h a n d ise re m a in e d o n h a n d a t ye a r e n d . O n Ap ril 1, so ld to th e p a re n t o n e o f its Sto re
e q u ip m e n t th a t c o st P 25,000 w ith a g a in o f 15,000.

6% o f p a re n t’s to ta l in ve n to ry re m a in e d o n h a n d a t ye a r e n d a fte r its sa le to o u tsid e r a n d

su b sid ia ry. Wh ile th e su b sid ia ry, 7% o f its to ta l in ve n to ry re m a in e d o n h a n d a t ye a r e n d
a fte r its sa le to o u tsid e r a n d p a re n t c o m p a n y.

Du rin g 2021, 10% p e rc e n t o f its re p o rte d to ta l sa le s w a s a sa le to th e su b sid ia ry o f w h ic h 6

% o f th e m e rc h a n d ise re m a in e d o n h a n d b y th e su b sid ia ry a t ye a r e n d .

Du rin g 2021, 9 % o f su b sid ia ry’s m e rc h a n d ise w a s so ld to p a re n t c o m p a n y. 7% o f th is

m e rc h a n d ise re m a in e d o n h a n d a t ye a r e n d .

8% o f p a re n t’s to ta l in ve n to ry re m a in e d o n h a n d a t ye a r e n d a fte r its sa le to o u tsid e r a n d

su b sid ia ry. Wh ile th e su b sid ia ry, 5% o f its to ta l in ve n to ry re m a in e d o n h a n d a t ye a r e n d
a fte r its sa le to o u tsid e r a n d p a re n t c o m p a n y.
 Parent
Beginning Inventory 35,500 35,500 Beginning Inventory
Add: Purchases ? 1,400,670 Purchases
Goods Available for sale ? 100% 1,436,170 Goods Available for sale
Less: Ending Inventory ? 6% 86,170 % Sold to Subsidiary
Cost of Good Sold 1,350,000 94% 1,350,000 COGS to subsidiary
Divided by % of COGS based on selling price
Sales to Subsidiary

Subsidiary
Beginning Inventory 12,100 12,100 Beginning Inventory
Add: Purchases ? 686,825 Purchases
Goods Available for sale ? 100% 698,925 Goods Available for sale
Less: Ending Inventory ? 7% 48,925 % Sold to Parent
Cost of Good Sold 650,000 93% 650,000 COGS to Parent
Divided by % of COGS based on selling price
Sales to Parent

Downstream Sales
Sale of Parent to Ending Inventory 12/31 of Unrealized Intercompany
Subsidiary Subsidiary (10%) profit in Ending Inventory
Year 2020 276,187 27,619 13,257
\

Upstream Sales
Sale of Subsidiary to Ending Inventory 12/31 of Unrealized Intercompany
Parent Parent (8%) profit in Ending Inventory
Year 2020 416,027 33,282 19,304
 2020 Markup Based on Selling Price
35,500 Parent
1,400,670 Sales 2,600,000 100%
1,436,170 Cost of Good Sold 1,350,000 52%
10% Gross Profit 1,250,000 48%
143,617
ased on selling price 52% Markup Based on Selling Price
276,187 Subsidiary
Sales 1,530,000 100%
2020 Cost of Good Sold 650,000 42%
12,100 Gross Profit 880,000 58%
686,825
698,925
25% 2020
174,731 PARENT
ased on selling price 42% SALES 2,600,000
416,027 100% COGS 1,350,000
GROSS PROFIT 1,250,000

GP BASED ON SP % OF COGS 52%

% OF PROFIT 48%

Sales
Sales of P to S 2020 276,187

Sales of S to P 2020 416,027

Date of Sale Seller Selling Price

May 1,2020 Parent 71,750
June 1,2020 Subsidiary 32,292
 ?

2020
SUBSIDIARY
1,530,000
650,000
880,000

42%
58%

Unrealized Intercomany Profit

Ending Inventory in Ending Inventory
27,618.66 13,257

33,282.13 19,304

Original Cost Acc.Dep. Book Value Remaining Useful Life Unrealized gain on sale
70,000 26,250 43,750 5 28,000
25,000 7,708 17,292 7 15,000
Y1
3733
1265
COST MODEL - FULL GOODWILL APPROACH
Schedule of Determination & Allocation of Excess
Full Goodwill Approach - 100%
Date of Acquisition: May 1, 2020
Fair Value of Subsidiary
Common Stock (5,400 shares x 15) 81,000
APIC 169,000
250,000 80%
Fair Value of Subsidiary (100%)
Less: Book Value of SHE
Common Stocks (170,000 x 100%) 170,000
APIC (35,000 x 100%) 35,000
Retained Earnings (15,000 x 100%) 15,000
Allocated Excess
Less: (Over)/Under Valuation of Assets and Liabilities
Increase in Inventory (2,000 x 100%) 2,000
Increase in Store Equipment (10,000 x 100%) 10,000
Decrease in Delivery Equipment (-2,500 x 100%) (2,500)
Increase in Patents (5,000 x 100%) 5,000
Full Goodwill

COST MODEL - PARTIAL GOODWILL APPROACH

Schedule of Determination & Allocation of Excess
Partial Goodwill Approach - 80%
Date of Acquisition: May 1, 2020
Consideration Transferred
Common Stock (5,400 shares x 15) 81,000
APIC 169,000 250,000
Less: Book Value of SHE
Common Stocks (170,000 x 80%) 136,000
APIC (35,000 x 80%) 28,000
Retained Earnings (15,000 x 80%) 12,000 176,000
Allocated Excess 74,000
Less: (Over)/Under Valuation of Assets and Liabilities
Increase in Inventory (2,000 x 80%) 1,600
Increase in Store Equipment (10,000 x 80%) 8,000
Decrease in Delivery Equipment (-2,500 x 80%) (2,000)
Increase in Patents (5,000 x 80%) 4,000 11,600
Partial Goodwill 62,400
EQUITY METHOD - PARTIAL GOODWILL APPROACH
Schedule of Determination & Allocation of Excess
Partial Goodwill Approach - 80%)
Date of Acquisition: January 1, 2020
Fair Value of Subsidiary - 80%
Consideration Transferred 250,000
Less: Book Value of SHE
Common Stocks (170,000 x 80%) 136,000
APIC (35,000 x 80%) 28,000
Retained Earnings (15,000 x 80%) 12,000 176,000
Allocated Excess 74,000
Less: Over/Under Valuation of Assets and Liabilities
Decrease in Inventory (2,000 x 80%) 1,600
Decrease in Store Equipment (10,000 x 80%) 8,000
Increase in Delivery Equipment (-2,500 x 80%) (2,000)
Increase in Patents (5,000 x 80%) 4,000 11,600
Partial Goodwill 62,400

COMPUTATION OF GOODWILL IMPAIRMENT LOSS

Goodwill Impairment Loss Attributable to Parent Company (80 10,000 Given
Goodwill Impairment Loss Attributable to NCI (20%) 2,500
Total Goodwill Impairment Loss 12,500
 Over/Under Valuation of Assets & Liabilities
Book Value Fair Value
Inventory 12,100 14,100
Store Equipment 35,000 45,000
Delivery Equipment 27,500 25,000
Patents 15,000 20,000
Total

312,500 Adjustments for Store Equipment & Delivery Equipment

Book Value Fair Value
Store Equipment 50,000 45,000
Less: Acc. Depreciation 15,000
220,000 Net Book Value 35,000 45,000
92,500
Delivery Equipment 44,000 25,000
Less: Acc. Depreciation 16,500
Net Book Value 27,500 25,000

14,500 Summary of Depreciation & Amo

78,000 (Over)/Under
Valuation
Inventory 2,000
Store Equipment 10,000
Delivery Equipment (2,500)
Patents 5,000
Total 14,500

COMPUTATION OF REMAINING USEFUL LIFE

Store Equipment
Book Value 50,000
Divide: Useful Life 10
Yearly Depreciation 5,000

Accumulated Depreciation 15,000

Divide: Yearly Depreciation 5,000
Expired years 3
Therefore: 10 years less 3 years equals 7 years remaining useful life
COMPUTATION OF REMAINING USEFUL LIFE
Delivery Equipment
Book Value 44,000
Divide: Useful Life 8
Yearly Depreciation 5,500

Accumulated Depreciation 16,500

Divide: Yearly Depreciation 5,000
Expired years 3
Therefore: 8 years less 3 years equals 5 years remaining useful life

15,000
36,000
0.416666666666667
35
14.5833333333333
 es
(Over)/Under Valuation
2,000
10,000
(2,500)
5,000
14,500

ery Equipment
(Over)/Under Valuation
(5,000)
15,000
10,000

(19,000)
16,500
(2,500)

mmary of Depreciation & Amortization

Remaining Useful Life Annual Amounts 2020 2021

1 2,000 2,000 0
7 952 952 952
5 (333) (333) (333)
10 333 333 333
2,952 2,952 952

BV FV
Inventories 12,100 14,100
Store Equipmen 35000 45,000
Delivery Equip 27500 25000
Patent 15,000 20,000
s remaining useful life

BV FV
Store Equipmen 50,000 45,000
Accu. Dep 15,000
Net BV 35,000

BV FV
Delivery Equip 44,000 25,000
Accu. Dep 16,500
remaining useful life Net BV 27,500

Amort Remaining UL
Inventories 2,000 1
Store Equipmen 10,000 7
Delivery Equip -2500 5
Patent 5,000 10
Over/Under
2,000
10,000
-2500
5,000
14,500

Inc/Dec
5,000
15,000
-10,000

Inc/Dec
19,000
16,500
 2,500

Yr1 Yr2
2000
952 1429
-333 -500
333 500
2952 1429
 Worksheet for Consolidated Financial St
Cost Model (Partial Goodwill)
December 31, 2020
INCOME STATEMENT Companies
Parent Subsidiary
Sales 2,600,000 1,530,000

Gain on sale of store equipment 15,000

Gain on sale of delivery equipment 28,000
Gain on sale of land 18,000
Dividend Income 25,600
Total Revenue 2,671,600 1,545,000
Cost of Goods Sold 1,350,000 650,000

Depreciation Expense -

Amortization Expense
Operating Expenses ( OPEX) 550,000 420,000
Goodwill Impairment Loss
Total Cost and Expenses 1,900,000 1,070,000
Net income 771,600 475,000
NCI in Net Income-Subsidiary
Net income to Retained Earnings 771,600 475,000

STATEMENT OF RETAINED EARNINGS Companies

Parent Subsidiary
Retained Earnings, 1/1
Parent Co. 152,250
Subsidiary 15,000
Net Income, from above 771,600 475,000
Total 923,850 490,000
Dividends Paid
Parent Co. 70,000
Subsidiary 32,000
Retained Earnings, 12/31 to Balance Sheet 853,850 458,000

BALANCE SHEET Companies

Assets Parent Subsidiary
Cash 1,831,355 832,612
Accounts Receivable 67,850 20,100
Inventories 86,170 48,925
Land - 98,000
Store Equipment 312,292 25,000

Delivery Equipment 50,000 115,750

Patents - 15,000
Investment in Subsidiary 250,000 -

Goodwill
Total 2,597,667 1,155,387
Liabilites and Shareholders Equity
Accumulated depreciation-Store eqpt. 133,399 8,958

Accumulated depreciation-Delivery eqpt. 25,417 29,733

Accumulated amortization 1,000

Accounts Payable 900,402 452,695
Bonds Payable 109,700 -
Common Stock 381,000
Common Stock 170,000
Additional Paid In Capital 193,900
Additional Paid In Capital 35,000
Retained Earnings 853,850 458,000
Non-controlling Interest

TOTAL 2,597,667 1,155,387

 nsolidated Financial Statements
Model (Partial Goodwill)
ecember 31, 2020
Eliminations
DR. CR. Consolidated
(E5) 276,187 3,437,786
(E6) 416,027
(E10) 15,000
(E9) 28,000
(E11) 18,000 -
(E4) 25,600 -
3,437,786
(E3) 2,000 1,342,347
(E7) 13,257 (E5) 276,187
(E8) 19,304 (E6) 416,027
(E3) 619 (E12) 3,733
(E13) 1,265 - 4,379
(E3) 333 333
970,000
(E3) 10,000 10,000
2,318,301
1,119,485
(E14) 87,802 - 87,802
912,129 697,212 1,031,683

Eliminations
DR. CR. Consolidated

152,250
(E1) 15,000 -
1,031,683
1,183,933

70,000
(E4) 32,000 -
15,000 32,000 1,113,933

Eliminations
DR. CR. Consolidated
2,663,967
87,950
(E2) 2,000 (E3) 2,000
(E7) 13,257
(E8) 19,304 102,534
 (E11) 18,000 80,000
(E2) 5,000
(E10) 7,292 325,000
(E2) 19,000
(E9) 1,750 145,000
(E2) 5,000 20,000
(E1) 176,000
(E2) 74,000 -
(E2) 62,400 (E3) 10,000 52,400
3,476,851

(E2) 15,000
(E13) 1,265 (E3) 952
(E10) 7,708 134,753
(E2) 16,500
(E3) 333
(E12) 3,733 (E9) 26,250 60,833
(E3) 333 1,333
1,353,097
109,700
381,000
(E1) 170,000 -
193,900
(E1) 35,000 -
1,113,933
(E4) 6,400 (E1) 44,000 128,302
(E2) 2,900
(E14) 87,802
317,632 515,548 3,476,851
1,244,761 1,244,761
Downstream

Downstream

Upstream
 JOURNAL ENTRIES
BOOK OF THE PARENT COMPANY
May 01, 2020
Investment in Subsidiary
Common Stocks
Additional Paid-In Capital
Acquisition of the Parent Company

May 01, - December 31, 2020

Cash
Dividend Income (32,000 x 80%)
Record dividends from Subsidiary Company

October 1,2020
Land
Cash
To record acquisition of land

December 31, 2020

Cash
Sales-Outsider/third parties
Sales - Subsidiary
To record sales

Merchandise Inventory
Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider

Cost of Goods Sold - Subsidiary
Merchandise Inventory
To record cost of goods sold

Operating Expenses
Accumulated Depreciation Expense - Store Equip. (18,667+2,732)
Accumulated Depreciation Expense - Delivery Equip.
Cash
To record operating expenses

Dividends Paid
Cash
To record dividends
May 1,2020
Cash
Accumulated Depreciation- Delivery Equipment (70000/120000)*45000
Delivery Equipment
Gain on sale
To record sale of delivery equipment

December 1,2020
Cash
Land
Gain on sale of land
To record sale of land

June 1,2020
Store equipment
Cash
To record acquisition of store equipment

JOURNAL ENTRIES
BOOK OF THE SUBSIDIARY COMPANY
May 1, - December 31, 2020
Dividends Paid
Cash
Dividends paid by Subsidiary Company

December 31, 2020

Cash
Sales - Outsider
Sales - Parent
To record sales

Merchandise Inventory
Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider

Cost of Goods Sold - Parent
Merchandise Inventory
To record cost of goods sold

Operating Expenses
Accumulated Depreciation Expense - Store Equip.
Accumulated Depreciation Expense - Delivery Equip. (3,667+9,567)
Accumulated Amortization Expense (15,000 / 10 yrs x 8/12 mons.)
Cash
To record operating expenses

May 1,2020
Delivery Equipment
Cash
To record acqusition of delivery equipment

December 1,2020
Land
Cash
To record acquisition of land

June 1,2020
Cash
Accumulated Depreciation- Store Equipment (15000/36*37)*25000/50000
Store Equipment
Gain on sale
To record sale of store equipment

ELIMINATING ENTRIES
CONSOLIDATED WORKPAPER - 1ST YEAR OF ACQUISITIO

(E1)
Common Stocks
Additional Paid-In Capital
Retained Earnings
Investment in Subsidiary (220,000 x 80%)
Non Controlling Interest (220,000 x 20%)
To eliminate intercompanny investment and equity accounts of subsidiary on date of acquisi

(E2)
Patent
Inventories
Accumulated Depreciation - Store Equip.
Accumulated Depreciation - Delivery Equip.
Goodwill
Store Equipment
Delivery Equipment
Investment in Subsidiary (250,000 - 176,000)
Non Controlling Interest
To allocate excess of cost over book value of identifiable assets acquired.

(E3)
Cost of Goods Sold
Accumulated Depreciation - Delivery Equipment
Goodwill Impairment Loss
 Amortization Expense
Depreciation Expense
Inventories
Accumulated Depreciation - Store Equipment
Goodwill
Accumulated Amortization
To provide for 2020 impairment loss and depreciation and amortization on differences betwe
of subsidiary's identifiable assets and liabilities.

E3 COMPUTATION

Inventory sold
Store Equipment
Delivery Equipment
Patent
Total

(E4)
Dividends Income
Non-Controlling Interest (32,000 x 20%)
Dividends Paid - Subsidiary
To eliminate intercompany dividends and NCI share of dividends

(E5)
Sales
Cost of Goods Sold
To eliminate intercompany downstream sales

(E6)
Sales
Cost of Goods Sold
To eliminate intercompany upstream sales

(E7)
Cost of Goods Sold
Inventory - Balance Sheet
To defer the downstream sales - unrealized profit in ending inventory until it is SOLD to outsi

(E8)
Cost of Goods Sold
Inventory - Balance Sheet
To defer the upstream sales - unrealized profit in ending inventory until it is SOLD to outside

(E9)
Gain on sale of delivery equipment
Delivery Equipment
 Accumulated Depreciation-Delivery equipment
To eliminate downstream transaction

(E10)
Gain on sale of store equipment
Store Equipment
Accumulated Depreciation- Store equipment
To eliminate upstream transaction

(E11)
Gain on sale of land
Land
To eliminate gain and restore land in its original cost

(E12)
Accumulated Depreciation- Delivery equipment
Depreciation Expense
To adjust downstream depreciation expense

(E13)
Accumulated Depreciation- Store equipment
Depreciation expense
To adjust upstream depreciation expense

(E14)
Non Controlling Interest in Net Income of Subsidiary
Non Controlling Interest
To istablish non controlling interest in subsidiary's adjusted net income in 2021.

COMPUTATION OF E14
Net Income of Subsidiary
Less: Unrealized Profit in Ending Inventory of P Company (Upstream)
Unrealized gain on sale on store equipment (Upstream)
Add: Realized gain on sale of store equipment (Upstream)
Total
Less: Amortization of Allocated Excess (E3)
Total
Multipled by: NCI %
Non Controlling Interest in Net Income - partial goodwill
MPANY

250,000
81,000 P
169,000 Store Equipment

Delivery Equipment
25,600
25,600

SU
Store Equipment
80,000
80,000
Delivery Equipment

2,600,000
2,323,813
276,187 Store Equipment

Delivery
1,400,670
840,402
560,268

1,206,383
143,617
1,350,000

550,000
21,399
6,667
521,935

70,000
70,000
 71,750
26,250 Downstream
70,000
28,000

98,000 Downstream
80,000
18,000

Upstream
32,292
32,292

COMPANY

32,000
32,000

1,530,000
1,113,973
416,027

686,825
412,095
274,730

475,269
174,731
650,000

420,000
1,667
13,233
1,000 Depreciation &
404,100 Amortization
 952
(333)
71,750 333
71,750 952

98,000
98,000

32,292
7,708
25,000
15,000 COGS

2,000
ES
AR OF ACQUISITION

2,000
170,000
35,000
15,000
176,000
44,000
ry on date of acquisition

5,000
2,000
15,000
16,500
62,400
5,000
19,000
74,000
2,900

2,000
333
10,000
 333
619
2,000
952
10,000
333
on differences between acquisition date FV and BV

(Over)/Under Remaining
Valuation Useful Life
2,000 1
10,000 7
(2,500) 5
5,000 10

25,600
6,400
32,000

276,187 Downstream
276,187

Upstream
416,027
416,027

Downstream
13,257
13,257
til it is SOLD to outsider.

19,304 Upstream
19,304
t is SOLD to outsider.

28,000 Downstream
1,750
 26,250

15,000 Upstream
7,292
7,708

Downstream
18,000
18,000

3,733 Downstream
3,733

Upstream
1,265
1,265

87,802
87,802

475,000
19,304
15,000
1,265
441,961
2,952
439,009
20%
87,802
 PARENT
280,000 120 18,667
32,392 83 2,732

120,000 60 6,667
- 70,000 - 26,250

SUBSIDIARY
50,000 120 1,667
- 25,000 - 7,708

44,000 96 3,667
71,750 60 9,567

USEFUL LIFE Expired Years Remaining Life

120 37 83

96 36 60
 Total

TOTAL
 619

2,000
 Worksheet for Consolidated Financial Stateme
Cost Model (Full Goodwill)
December 31, 2020
INCOME STATEMENT Companies
Parent Subsidiary
Sales 2,600,000 1,530,000 (E5)
(E6)
Gain on sale of store equipment 15,000 (E10)
Gain on sale of delivery equipment 28,000 (E9)
Gain on sale of land 18,000 (E11)
Dividend Income 25,600 (E4)
Total Revenue 2,671,600 1,545,000
Cost of Goods Sold 1,350,000 650,000 (E3)
(E7)
(E8)
Depreciation Expense (E3)

Amortization Expense - (E3)

Operating Expenses ( OPEX) 550,000 420,000
Goodwill Impairment Loss (E3)
Total Cost and Expenses 1,900,000 1,070,000
Net income 771,600 475,000
NCI in Net Income-Subsidiary (E14)
Net income to Retained Earnings 771,600 475,000

STATEMENT OF RETAINED EARNINGS Companies

Parent Subsidiary
Retained Earnings, 1/1
Parent Co. 152,250
Subsidiary 15,000 (E1)
Net Income, from above 771,600 475,000
Total 923,850 490,000
Dividends Paid
Parent Co. 70,000
Subsidiary 32,000
Retained Earnings, 12/31 to Balance Sheet 853,850 458,000

BALANCE SHEET Companies

Assets Parent Subsidiary
Cash 1,831,355 832,612
Accounts Receivable 67,850 20,100
Inventories 86,170 48,925 (E2)

Land - 98,000
Store Equipment 312,292 25,000
Delivery Equipment 50,000 115,750

Patents - 15,000 (E2)

Investment in Subsidiary 250,000 -

Goodwill (E2)
Total 2,597,667 1,155,387
Liabilites and Shareholders Equity
Accumulated depreciation-Store eqpt. 133,399 8,958 (E2)
(E13)

Accumulated depreciation-Delivery eqpt. 25,417 29,733 (E2)

(E3)
(E12)
Accumulated amortization 1,000
Accounts Payable 900,402 452,695
Bonds Payable 109,700 -
Common Stock 381,000
Common Stock 170,000 (E1)
Additional Paid In Capital 193,900
Additional Paid In Capital 35,000 (E1)
Retained Earnings 853,850 458,000
Non-controlling Interest (E4)

TOTAL 2,597,667 1,155,387

2,3,14
Financial Statements
Goodwill)
2020
Eliminations
DR. CR. Consolidated
276,187 3,437,786
416,027
15,000
28,000
18,000 -
25,600 -
3,437,786
2,000 1,342,347
13,257 (E5) 276,187
19,304 (E6) 416,027
619 (E12) 3,733
(E13) 1,265 - 4,379
333 333
970,000
12,500 12,500
2,320,801
1,116,985
85,302 - 85,302
912,129 697,212 1,031,683

Eliminations
DR. CR. Consolidated

152,250
15,000 -
1,031,683
1,183,933

70,000
(E4) 32,000 -
15,000 32,000 1,113,933

Eliminations
DR. CR. Consolidated
2,663,967
87,950
2,000 (E3) 2,000
(E7) 13,257
(E8) 19,304 102,534
(E11) 18,000 80,000
(E2) 5,000
 (E10) 7,292 325,000
(E2) 19,000
(E9) 1,750 145,000
5,000 20,000
(E1) 176,000
(E2) 74,000 -
78,000 (E3) 12,500 65,500
3,489,951

15,000
1,265 (E3) 952
(E10) 7,708 134,753
16,500
333
3,733 (E9) 26,250 60,833
(E3) 333 1,333
1,353,097
109,700
381,000
170,000 -
193,900
35,000 -
1,113,933
6,400 (E1) 44,000 141,402
(E2) 18,500
(E14) 85,302
333,232 531,148 3,489,951
1,260,361 1,260,361
 JOURNAL ENTRIES
BOOK OF THE PARENT COMPANY
May 01, 2020
Investment in Subsidiary 250,000
Common Stocks
Additional Paid-In Capital
Acquisition of the Parent Company

May 01, - December 31, 2020

Cash 25,600
Dividend Income (32,000 x 80%)
Record dividends from Subsidiary Company

October 1,2020
Land 80,000
Cash
To record acquisition of land

December 31, 2020

Cash 2,600,000
Sales-Outsider/third parties
Sales - Subsidiary
To record sales

Merchandise Inventory 1,400,670

Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider 1,206,383

Cost of Goods Sold - Subsidiary 143,617
Merchandise Inventory
To record cost of goods sold

Operating Expenses 550,000

Accumulated Depreciation Expense - Store Equip.
Accumulated Depreciation Expense - Delivery Equip.
Cash
To record operating expenses

Dividends Paid 70,000

Cash
To record dividends

May 1,2020
Cash 71,750
Accumulated Depreciation- Delivery Equipment 26,250
Delivery Equipment
Gain on sale
To record sale of delivery equipment

December 1,2020
Cash 98,000
Land
Gain on sale of land
To record sale of land

June 1,2020
Store equipment 32,292
Cash
To record acquisition of store equipment

JOURNAL ENTRIES
BOOK OF THE SUBSIDIARY COMPANY
May 1, - December 31, 2020
Dividends Paid 32,000
Cash
Dividends paid by Subsidiary Company

December 31, 2020

Cash 1,530,000
Sales - Outsider
Sales - Parent
To record sales

Merchandise Inventory 686,825

Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider 475,269

Cost of Goods Sold - Parent 174,731
Merchandise Inventory
To record cost of goods sold

Operating Expenses 420,000

Accumulated Depreciation Expense - Store Equip.
Accumulated Depreciation Expense - Delivery Equip. (3,667+9,567)
Accumulated Amortization Expense (15,000 / 10 yrs x 8/12 mons.)
Cash
To record operating expenses
May 1,2020
Delivery Equipment 71,750
Cash
To record acqusition of delivery equipment

December 1,2020
Land 98,000
Cash
To record acquisition of land

June 1,2020
Cash 32,292
Accumulated Depreciation- Store Equipment 7,708
Store Equipment
Gain on sale
To record sale of store equipment

ELIMINATING ENTRIES
CONSOLIDATED WORKPAPER - 1ST YEAR OF ACQUISITION

(E1)
Common Stocks 170,000
Additional Paid-In Capital 35,000
Retained Earnings 15,000
Investment in Subsidiary (220,000 x 80%)
Non Controlling Interest (220,000 x 20%)
To eliminate intercompanny investment and equity accounts of subsidiary on date of acquisition

(E2)
Patent 5,000
Inventories 2,000
Accumulated Depreciation - Store Equip. 15,000
Accumulated Depreciation - Delivery Equip. 16,500
Goodwill 78,000
Store Equipment
Delivery Equipment
Investment in Subsidiary (250,000 - 176,000)
Non Controlling Interest (74,000/80%) x 20%)
To allocate excess of cost over book value of identifiable assets acquired.

(E3)
Cost of Goods Sold 2,000
Accumulated Depreciation - Delivery Equipment 333
Goodwill Impairment Loss 12,500
Amortization Expense 333
Depreciation Expense 619
 Inventories
Accumulated Depreciation - Store Equipment
Goodwill
Accumulated Amortization
To provide for 2020 impairment loss and depreciation and amortization on differences between acquisi
and BV of subsidiary's identifiable assets and liabilities.

E3 COMPUTATION (Over)/Under
Valuation
Inventory sold 2,000
Store Equipment 10,000
Delivery Equipment (2,500)
Patent 5,000
Total

(E4)
Dividends Income 25,600
Non-Controlling Interest (32,000 x 20%) 6,400
Dividends Paid - Subsidiary
To eliminate intercompany dividends and NCI share of dividends

(E5)
Sales 276,187
Cost of Goods Sold
To eliminate intercompany downstream sales

(E6)
Sales 416,027
Cost of Goods Sold
To eliminate intercompany upstream sales

(E7)
Cost of Goods Sold 13,257
Inventory - Balance Sheet
To defer the downstream sales - unrealized profit in ending inventory until it is SOLD to outsider.

(E8)
Cost of Goods Sold 19,304
Inventory - Balance Sheet
To defer the upstream sales - unrealized profit in ending inventory until it is SOLD to outsider.

(E9)
Gain on sale of delivery equipment 28,000
Delivery Equipment
Accumulated Depreciation- Delivery equipment
To eliminate downstream transaction
 (E10)
Gain on sale of store equipment 15,000
Store Equipment
Accumulated Depreciation- Store equipment
To eliminate upstream transaction

(E11)
Gain on sale of land 18,000
Land
To eliminate gain and restore land in its original cost

(E12)
Accumulated Depreciation- Delivery equipment 3,733
Depreciation Expense
To adjust downstream depreciation expense

(E13)
Accumulated Depreciation- Store equipment 1,265
Depreciation expense
To adjust upstream depreciation expense

(E14)
Non Controlling Interest in Net Income of Subsidiary 85,302
Non Controlling Interest
To establish non controlling interest in subsidiary's adjusted net income in 2021.

COMPUTATION OF E14
Net Income of Subsidiary 475,000
Less: Unrealized Profit in Ending Inventory of P Company (Upstream) 19,304
Unrealized gain on sale on store equipment (Upstream) 15,000
Add: Realized gain on sale on of store equipment (Upstream) 1,265
Total 441,961
Less: Amortization of Allocated Excess (E3) 2,952
Total 439,009
Multipled by: NCI % 20%
Non Controlling Interest in Net Income -Partial Goodwill 87,802
Less: NCI on impairment loss on full-goodwill 2,500
Non Controlling Interest in Net Income - full-goodwill 85,302

10,000 partial GIL

12,500
 81,000
169,000

25,600

80,000

2,323,813
276,187
PARENT
Store Equipment 280,000
32,392
840,402
560,268 Delivery Equipment 120,000
- 70,000

SUBSIDIARY
1,350,000 Store Equipment 50,000
- 25,000

Delivery Equipment 44,000

21,399 71,750
6,667
521,935
USEFUL LIFE
Store Equipment 120

70,000 Delivery 96
 Downstream
70,000
28,000

Downstream
80,000
18,000

Upstream

32,292

32,000

1,113,973
416,027

412,095
274,730

650,000

1,667
13,233
1,000
404,100
 Downstream

71,750

Downstream
98,000

Upstream

25,000
15,000

SITION

176,000
44,000
of acquisition

5,000
19,000
74,000
18,500

COGS Depreciation & TOTAL

Amortization
2,000
952
(333) 619
333
 2,000 2,000 952 2,952
952
12,500
333
ces between acquisition date FV

Remaining
Useful Life
1
7
5
10

32,000

Downstream

276,187

Upstream

416,027

Downstream
13,257
LD to outsider.

Upstream
19,304
to outsider.

Downstream
1,750
26,250
 Upstream

7,292
7,708

Downstream

18,000

Downstream

3,733

Upstream

1,265

85,302
RENT
120 18,667
83 2,732

60 6,667
- 26,250

IDIARY
120 1,667
- 7,708

96 3,667
60 9,567

Expired Years Remaining Life

37 83

36 60
Total
 Parent
Beginning Inventory 35,500 35,500
Add: Purchases ? 1,879,394
Goods Available for sale ? 100% 1,914,894
Less: Ending Inventory ? 6% 114,894
Cost of Good Sold 1,800,000 94% 1,800,000

Subsidiary
Beginning Inventory 12,100 12,100
Add: Purchases ? 1,041,663
Goods Available for sale ? 100% 1,053,763
Less: Ending Inventory ? 7% 73,763
Cost of Good Sold 980,000 93% 980,000

Downstream Sales
Sale of Parent to Ending Inventory 12/31 of
Subsidiary Subsidiary (10%)
Year 2020 375,469 37,547
\

Upstream Sales
Sale of Subsidiary to Ending Inventory 12/31 of
Parent Parent (8%)
Year 2020 658,602 52,688
 Parent 2020
Beginning Inventory 35,500
Purchases 1,879,394
Goods Available for sale 1,914,894
% Sold to Subsidiary 10%
COGS to subsidiary 191,489
Divided by % of COGS based on selling price 51%
Sales to Subsidiary 375,469

Subsidiary 2020
Beginning Inventory 12,100
Purchases 1,041,663
Goods Available for sale 1,053,763
% Sold to Parent 25%
COGS to Parent 263,441
Divided by % of COGS based on selling price 40%
Sales to Parent 658,602 100%

Unrealized Intercompany GP BASED ON SP

profit in Ending Inventory
18,398

Unrealized Intercompany
profit in Ending Inventory
31,613
 Markup Based on Selling Price
Parent
Sales 3,500,000 100%
Cost of Good Sold 1,800,000 51% ?
Gross Profit 1,700,000 49%

Markup Based on Selling Price

Subsidiary
Sales 2,430,000 100%
Cost of Good Sold 980,000 40% ?
Gross Profit 1,450,000 60%
Less: Operating Expenses 400,000
Net Income 1,050,000

2020
PARENT SUBSIDIARY
SALES 3,500,000 2,430,000
COGS 1,800,000 980,000
GROSS PROFIT 1,700,000 1,450,000

% OF COGS 51% 40%

% OF PROFIT 49% 60%

Sales Ending Inventory

Sales of P to S 2020 375,469 37,546.93

Sales of S to P 2020 658,602 52,688.17

EQUITY METHOD - FULL GOODWILL APPROACH
Schedule of Determination & Allocation of Excess
Full Goodwill Approach - 100%
Date of Acquisition: May 1, 2020
Fair Value of Subsidiary
Common Stock (5,400 shares x 15) 81,000
APIC 169,000
250,000 80%
Fair Value of Subsidiary (100%)
Less: Book Value of SHE
Common Stocks (170,000 x 100%) 170,000
APIC (35,000 x 100%) 35,000
Retained Earnings (15,000 x 100%) 15,000
Allocated Excess
Less: (Over)/Under Valuation of Assets and Liabilities
Increase in Inventory (2,000 x 100%) 2,000
Increase in Store Equipment (10,000 x 100%) 10,000
Decrease in Delivery Equipment (-2,500 x 100%) (2,500)
Increase in Patents (5,000 x 100%) 5,000
Full Goodwill

EQUITY METHOD - PARTIAL GOODWILL APPROACH

Schedule of Determination & Allocation of Excess
Partial Goodwill Approach - 80%
Date of Acquisition: May 1, 2020
Consideration Transferred
Common Stock (5,400 shares x 15) 81,000
APIC 169,000 250,000
Less: Book Value of SHE
Common Stocks (170,000 x 80%) 136,000
APIC (35,000 x 80%) 28,000
Retained Earnings (15,000 x 80%) 12,000 176,000
Allocated Excess 74,000
Less: (Over)/Under Valuation of Assets and Liabilities
Increase in Inventory (2,000 x 80%) 1,600
Increase in Store Equipment (10,000 x 80%) 8,000
Decrease in Delivery Equipment (-2,500 x 80%) (2,000)
Increase in Patents (5,000 x 80%) 4,000 11,600
Partial Goodwill 62,400
EQUITY METHOD - PARTIAL GOODWILL APPROACH
Schedule of Determination & Allocation of Excess
Partial Goodwill Approach - 80%)
Date of Acquisition: January 1, 2020
Fair Value of Subsidiary - 80%
Consideration Transferred 250,000
Less: Book Value of SHE
Common Stocks (170,000 x 80%) 136,000
APIC (35,000 x 80%) 28,000
Retained Earnings (15,000 x 80%) 12,000 176,000
Allocated Excess 74,000
Less: Over/Under Valuation of Assets and Liabilities
Decrease in Inventory (2,000 x 80%) 1,600
Decrease in Store Equipment (10,000 x 80%) 8,000
Increase in Delivery Equipment (-2,500 x 80%) (2,000)
Increase in Patents (5,000 x 80%) 4,000 11,600
Partial Goodwill 62,400

COMPUTATION OF GOODWILL IMPAIRMENT LOSS

Goodwill Impairment Loss Attributable to Parent Company (80 10,000 Given
Goodwill Impairment Loss Attributable to NCI (20%) 2,500
Total Goodwill Impairment Loss 12,500
 Over/Under Valuation of Assets & Liabilities
Book Value Fair Value
Inventory 12,100 14,100
Store Equipment 35,000 45,000
Delivery Equipment 27,500 25,000
Patents 15,000 20,000
Total

312,500 Adjustments for Store Equipment & Delivery Equipment

Book Value Fair Value
Store Equipment 50,000 45,000
Less: Acc. Depreciation 15,000
220,000 Net Book Value 35,000 45,000
92,500
Delivery Equipment 44,000 25,000
Less: Acc. Depreciation 16,500
Net Book Value 27,500 25,000

14,500 Summary of Depreciation & Amortizatio

78,000 (Over)/Under
Valuation
Inventory 2,000
Store Equipment 10,000
Delivery Equipment (2,500)
Patents 5,000
Total 14,500

COMPUTATION OF REMAINING USEFUL LIFE

Store Equipment
Book Value 50,000
Divide: Useful Life 10
Yearly Depreciation 5,000

Accumulated Depreciation 15,000

Divide: Yearly Depreciation 5,000
Expired years 3
Therefore: 10 years less 3 years equals 7 years remaining useful life
COMPUTATION OF REMAINING USEFUL LIFE
Delivery Equipment
Book Value 44,000
Divide: Useful Life 8
Yearly Depreciation 5,500
Accumulated Depreciation 16,500
Divide: Yearly Depreciation 5,000
Expired years 3
Therefore: 8 years less 3 years equals 5 years remaining useful life
es
(Over)/Under Valuation
2,000
10,000
(2,500)
5,000
14,500

ery Equipment
(Over)/Under Valuation
(5,000)
15,000
10,000

(19,000)
16,500
(2,500)

y of Depreciation & Amortization

Remaining Useful Life Annual Amounts 2020 2021

1 2,000 2,000 0
7 952 952 952
5 (333) (333) (333)
10 333 333 333
2,952 2,952 952

s remaining useful life

remaining useful life
 Worksheet for Consolidated Financial State
Equity Method (Partial Goodwill)
December 31, 2020
INCOME STATEMENT Companies
Parent Subsidiary
Sales 3,500,000 2,430,000

Gain on sale of store equipment 15,000

Gain on sale of delivery equipment 28,000
Gain on sale of land 18,000
Investment Income 742,695
Total Revenue 4,288,695 2,445,000
Cost of Goods Sold 1,800,000 980,000

Depreciation Expense -

Amortization Expense -
Operating Expenses ( OPEX) 620,000 400,000
Goodwill Impairment Loss
Total Cost and Expenses 2,420,000 1,380,000
Net income 1,868,695 1,065,000
NCI in Net Income-Subsidiary
Net income to Retained Earnings 1,868,695 1,065,000

STATEMENT OF RETAINED EARNINGS Companies

Parent Subsidiary
Retained Earnings, 1/1
Parent Co. 152,250
Subsidiary 15,000
Net Income, from above 1,868,695 1,065,000
Total 2,020,945 1,080,000
Dividends Paid
Parent Co. 70,000
Subsidiary 32,000
Retained Earnings, 12/31 to Balance Sheet 1,950,945 1,048,000

BALANCE SHEET Companies

Assets Parent Subsidiary
Cash 2,469,866 1,610,676
Accounts Receivable 67,850 20,100
Inventories 114,894 73,763
Land - 98,000
Store Equipment 312,292 25,000

Delivery Equipment 50,000 115,750

Patents - 15,000
Investment in Subsidiary 967,095 -

Goodwill
Total 3,981,997 1,958,290
Liabilites and Shareholders Equity
Accumulated depreciation-Store eqpt. 133,399 8,958

Accumulated depreciation-Delivery eqpt. 25,417 29,733

Accumulated amortization 1,000

Accounts Payable 1,187,636 665,598
Bonds Payable 109,700 -
Common Stock 381,000
Common Stock 170,000
Additional Paid In Capital 193,900
Additional Paid In Capital 35,000
Retained Earnings 1,950,945 1,048,000
Non-controlling Interest

TOTAL 3,981,997 1,958,290

lidated Financial Statements
od (Partial Goodwill)
mber 31, 2020
Eliminations
DR. CR. Consolidated
(E5) 375,469 4,895,929
(E6) 658,602
(E10) 15,000
(E9) 28,000
(E11) 18,000
(E4) 742,695 -
4,895,929
(E3) 2,000 1,797,940
(E7) 18,398 (E5) 375,469
(E8) 31,613 (E6) 658,602
(E3) 619 (E12) 3,733
(E13) 1,265 - 4,379
(E3) 333 333
1,020,000
(E3) 10,000 10,000
2,823,894
2,072,035
(E14) 203,340 203,340
2,104,070 1,039,070 1,868,695

Eliminations
DR. CR. Consolidated

152,250
(E1) 15,000 -
1,868,695
2,020,945

70,000
(E4) 32,000 -
15,000 32,000 1,950,945

Eliminations
DR. CR. Consolidated
4,080,542
87,950
(E2) 2,000 (E3) 2,000
(E7) 18,398
 (E8) 31,613 138,646
(E11) 18,000 80,000
(E2) 5,000 325,000
(E10) 7,292
(E2) 19,000
(E9) 1,750 145,000
(E2) 5,000 20,000
(E1) 176,000
(E2) 74,000
(E4) 717,095 -
(E2) 62,400 (E3) 10,000 52,400
4,929,539

(E2) 15,000
(E13) 1,265 (E3) 952
(E10) 7,708 134,753
(E2) 16,500
(E3) 333
(E12) 3,733 (E9) 26,250 60,833
(E3) 333 1,333
1,853,234
109,700
381,000
(E1) 170,000 -
193,900
(E1) 35,000 -
1,950,945
(E4) 6,400 (E1) 44,000 243,840
(E2) 2,900
(E14) 203,340
317,632 1,365,632 4,929,539
2,436,702 2,436,702
Downstream
Downstream

Upstream
 JOURNAL ENTRIES
BOOK OF THE PARENT COMPANY
May 01, 2020
Investment in Subsidiary 250,000
Common Stocks
Additional Paid-In Capital
Acquisition of the Parent Company

May 01, - December 31, 2020

Cash 25,600
Investment in Subsidiary (32,000 x 80%)
Record dividends from Subsidiary Company

Investment in Subsidiary (1,065,000 x 80%) 852,000

Investment Income

Investment income 12,362

Investment in Subsidiary

October 1,2020
Land 80,000
Cash
To record acquisition of land

December 31, 2020

Cash 3,500,000
Sales-Outsider/third parties
Sales - Subsidiary
To record sales

Merchandise Inventory 1,879,394

Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider 1,608,511

Cost of Goods Sold - Subsidiary 191,489
Merchandise Inventory
To record cost of goods sold

Operating Expenses 620,000

Accumulated Depreciation Expense - Store Equip.
Accumulated Depreciation Expense - Delivery Equip.
 Cash
To record operating expenses

Dividends Paid 70,000

Cash
To record dividends

Investment Income 18,398

Investment in Subsidiary

Investment Income 25,290

Investment in Subsidiary

May 1,2020
Cash 71,750
Accumulated Depreciation- Delivery Equipment 26,250
Delivery Equipment
Gain on sale
To record sale of delivery equipment

December 1,2020
Cash 98,000
Land
Gain on sale of land
To record sale of land

June 1,2020
Store equipment 32,292
Cash
To record acquisition of store equipment

Investment income 18,000

Investment in Subsidiary
To record unrealized gain on land

Investment income 28,000

Investment in Subsidiary
To record unrealized gain on delivery equipment

Investment income 12,000

Investment in Subsidiary
To record unrealized gain on store equipment
Investment in subsidiary 3,733
Investment income
To record realized gain on sale of delivery equipment

Investment in subsidiary 1,012

Investment income
To record realized gain on sale of store equipment
JOURNAL ENTRIES
BOOK OF THE SUBSIDIARY COMPANY
May 1, - December 31, 2020
Dividends Paid 32,000
Cash
Dividends paid by Subsidiary Company

December 31, 2020

Cash 2,430,000
Sales - Outsider
Sales - Parent
To record sales

Merchandise Inventory 1,041,663

Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider 716,559

Cost of Goods Sold - Parent 263,441
Merchandise Inventory
To record cost of goods sold

Operating Expenses 400,000

Accumulated Depreciation Expense - Store Equip.
Accumulated Depreciation Expense - Delivery Equip.
Accumulated Amortization Expense (15,000 / 10 yrs x 8/12 mons.)
Cash
To record operating expenses

May 1,2020
Delivery Equipment 71,750
Cash
To record acqusition of delivery equipment

December 1,2020
Land 98,000
Cash
To record acquisition of land

June 1,2020
Cash 32,292
Accumulated Depreciation- Store Equipment 7,708
Store Equipment
Gain on sale
To record sale of store equipment

ELIMINATING ENTRIES
CONSOLIDATED WORKPAPER - 1ST YEAR OF ACQUISITION

(E1)
Common Stocks 170,000
Additional Paid-In Capital 35,000
Retained Earnings 15,000
Investment in Subsidiary (220,000 x 80%)
Non Controlling Interest (220,000 x 20%)
To eliminate intercompanny investment and equity accounts of subsidiary on date of acquisition

(E2)
Patent 5,000
Inventories 2,000
Accumulated Depreciation - Store Equip. 15,000
Accumulated Depreciation - Delivery Equip. 16,500
Goodwill 62,400
Store Equipment
Delivery Equipment
Investment in Subsidiary (250,000 - 176,000)
Non Controlling Interest ((74,000/80%) x 20%)
To allocate excess of cost over book value of identifiable assets acquired.

(E3)
Cost of Goods Sold 2,000
Accumulated Depreciation - Delivery Equipment 333
Goodwill Impairment Loss 10,000
Amortization Expense 333
Depreciation Expense 619
Inventories
Accumulated Depreciation - Store Equipment
Goodwill
 Accumulated Amortization
To provide for 2020 impairment loss and depreciation and amortization on differences between acquisition
and BV of subsidiary's identifiable assets and liabilities.

E3 COMPUTATION (Over)/Under
Valuation
Inventory sold 2,000
Store Equipment 10,000
Delivery Equipment (2,500)
Patent 5,000
Total

(E4)
Investment Income 742,695
Non-Controlling Interest (32,000 x 20%) 6,400
Investment in Subsidiary
Dividends Paid - Subsidiary
To eliminate intercompany dividends and NCI share of dividends

(E5)
Sales 375,469
Cost of Goods Sold
To eliminate intercompany downstream sales

(E6)
Sales 658,602
Cost of Goods Sold
To eliminate intercompany upstream sales

(E7)
Cost of Goods Sold 18,398
Inventory - Balance Sheet
To defer the downstream sales - unrealized profit in ending inventory until it is SOLD to outsider.

(E8)
Cost of Goods Sold 31,613
Inventory - Balance Sheet
To defer the upstream sales - unrealized profit in ending inventory until it is SOLD to outsider.

(E9)
Gain on sale of delivery equipment 28,000
Delivery Equipment
Accumulated Depreciation-Delivery equipment
To eliminate downstream transaction

(E10)
Gain on sale of store equipment 15,000
Store Equipment
Accumulated Depreciation- Store equipment
To eliminate upstream transaction

(E11)
Gain on sale of land 18,000
Land
To eliminate gain and restore land in its original cost

(E12)
Accumulated Depreciation- Delivery equipment 3,733
Depreciation Expense
To adjust downstream depreciation expense

(E13)
Accumulated Depreciation- Store equipment 1,265
Depreciation expense
To adjust upstream depreciation expense

(E14)
Non Controlling Interest in Net Income of Subsidiary 203,340
Non Controlling Interest
To istablish non controlling interest in subsidiary's adjusted net income in 2021.

COMPUTATION OF E14
Net Income of Subsidiary 1,065,000
Less: Unrealized Profit in Ending Inventory of P Company (Upstream) 31,613
Unrealized gain on sale of store equipment (Upstream) 15,000
Add: Realized gain on store equipment (Upstream) 1,265
Total 1,019,652
Less: Amortization of Allocated Excess (E3) 2,952
Total 1,016,700
Multipled by: NCI % 20%
Non Controlling Interest in Net Income - partial goodwill 203,340
 81,000
169,000

25,600
COMPUTATION OF (JE3) May 01, - December 31, 2020
Inventory Sold
Store Equipment
852,000 Delivery Equipment
Patent
Goodwill Impairment loss
12,362 Totals
Multiplied by: CI %
TOTAL

80,000

3,124,531 PARENT
375,469 Store Equipment 280,000
32,392

Delivery Equipment 120,000

1,127,636 - 70,000
751,757

SUBSIDIARY
Store Equipment 50,000
- 25,000
1,800,000
Delivery Equipment 44,000
71,750

21,399
6,667 USEFUL LIFE
591,935 Store Equipment 120

Delivery 96

70,000

18,398

25,290

Downstream

70,000
28,000

Downstream
80,000
18,000

Upstream

32,292

18,000

28,000

12,000
 3,733

1,012

32,000

1,771,398
658,602

624,998
416,665

980,000

1,667
13,233
1,000
384,100 COGS Depreciation & TOTAL
Amortization
2,000
952
(333) 619
71,750 333
2,000 952 2,952

Investment in Subsidiary
 250,000 25,600
98,000 852,000 12,362
3,733 18,398
1,012 25,290
12,000
28,000
18,000
25,000 967,095
15,000
Remaining UL
5

SITION 83

176,000
44,000
of acquisition

5,000
19,000
74,000
2,900

2,000
952
10,000
 333
es between acquisition date FV

Remaining
Useful Life
1
7
5
10

717,095 717,095
32,000

Downstream

375,469

Upstream

658,602

Downstream

18,398
D to outsider.

Upstream

31,613
o outsider.

Downstream
1,750
26,250
 Upstream
7,292
7,708

Downstream
18,000

Downstream
3,733

Upstream

1,265

203,340
, - December 31, 2020
2,000
952
(333)
333
12,500
15,452
80%
12,362

PARENT
120 18,667
83 2,732

60 6,667
- 26,250

UBSIDIARY
120 1,667
- 7,708

96 3,667
60 9,567

Expired Years Remaining Life

37 83

36 60
Investment income
 12,362 852,000
18,398 1,012
25,290 3,733
12,000
28,000
18,000

742,695

Unrealized gain on Sale Yr1

28,000 3733

15,000 1265
 Worksheet for Consolidated Financial Statements
Equity Method (Full Goodwill)
December 31, 2020
INCOME STATEMENT Companies Eliminations
Parent Subsidiary DR.
Sales 3,500,000 2,430,000 (E5) 375,469
(E6) 658,602
Gain on sale of store equipment 15,000 (E10) 15,000
Gain on sale of delivery equipment 28,000 (E9) 28,000
Gain on sale of land 18,000 (E11) 18,000
Investment Income 742,695 (E4) 742,695
Total Revenue 4,288,695 2,445,000
Cost of Goods Sold 1,800,000 980,000 (E3) 2,000
(E7) 18,398 (E5)
(E8) 31,613 (E6)
Depreciation Expense - (E3) 619 (E12)
(E13)
Amortization Expense - (E3) 333
Operating Expenses ( OPEX) 620,000 400,000
Goodwill Impairment Loss (E3) 12,500
Total Cost and Expenses 2,420,000 1,380,000
Net income 1,868,695 1,065,000
NCI in Net Income-Subsidiary (E14) 200,840
Net income to Retained Earnings 1,868,695 1,065,000 2,104,070

STATEMENT OF RETAINED EARNINGS Companies Eliminations

Parent Subsidiary DR.
Retained Earnings, 1/1
Parent Co. 152,250
Subsidiary 15,000 (E1) 15,000
Net Income, from above 1,868,695 1,065,000
Total 2,020,945 1,080,000
Dividends Paid
Parent Co. 70,000
Subsidiary 32,000 (E4)
Retained Earnings, 12/31 to Balance Sheet 1,950,945 1,048,000 15,000

BALANCE SHEET Companies Eliminations

Assets Parent Subsidiary DR.
Cash 2,469,866 1,610,676
Accounts Receivable 67,850 20,100
Inventories 114,894 73,763 (E2) 2,000 (E3)
(E7)
(E8)
Land - 98,000 (E11)
Store Equipment 312,292 25,000 (E2)
(E10)
Delivery Equipment 50,000 115,750 (E2)
(E9)
Patents - 15,000 (E2) 5,000
Investment in Subsidiary 967,095 - (E1)
(E2)
(E4)
Goodwill (E2) 78,000 (E3)
Total 3,981,997 1,958,290
Liabilites and Shareholders Equity
Accumulated depreciation-Store eqpt. 133,399 8,958 (E2) 15,000
(E13) 1,265 (E3)
(E10)
Accumulated depreciation-Delivery eqpt. 25,417 29,733 (E2) 16,500
(E3) 333
(E12) 3,733 (E9)
Accumulated amortization 1,000 (E3)
Accounts Payable 1,187,636 665,598
Bonds Payable 109,700 -
Common Stock 381,000
Common Stock 170,000 (E1) 170,000
Additional Paid In Capital 193,900
Additional Paid In Capital 35,000 (E1) 35,000
Retained Earnings 1,950,945 1,048,000
Non-controlling Interest (E4) 6,400 (E1)
(E2)
(E14)
TOTAL 3,981,997 1,958,290 333,232
2,452,302

2,3,14
 JOURNAL ENTRIES
BOOK OF THE PARENT COMPANY
May 01, 2020
inations Investment in Subsidiary
CR. Consolidated Common Stocks
4,895,929 Additional Paid-In Capital
Acquisition of the Parent Company

May 01, - December 31, 2020

Cash
- Investment in Subsidiary (32,000 x 80%)
4,895,929 Record dividends from Subsidiary Company
1,797,939
375,469 Investment in Subsidiary (1,065,000 x 80%)
658,602 Investment Income
3,733
1,265 - 4,379 Investment income
333 Investment in Subsidiary
1,020,000
12,500 October 1,2020
2,826,393 Land
2,069,535 Cash
200,840 To record acquisition of land
1,039,070 1,868,695
December 31, 2020
inations Cash
CR. Consolidated Sales-Outsider/third parties
Sales - Subsidiary
152,250 To record sales
-
1,868,695 Merchandise Inventory
 2,020,945 Accounts Payable
Cash
70,000 To record purchases
32,000 -
32,000 1,950,945 Cost of Goods Sold - Outsider
Cost of Goods Sold - Subsidiary
inations Merchandise Inventory
CR. Consolidated To record cost of goods sold
4,080,542
87,950 Operating Expenses
2,000 Accumulated Depreciation Expense - Store Equip.
18,398 Accumulated Depreciation Expense - Delivery Equip.
31,613 138,646 Cash
18,000 80,000 To record operating expenses
5,000
7,292 325,000 Dividends Paid
19,000 Cash
1,750 145,000 To record dividends
20,000
176,000 Investment Income
74,000 Investment in Subsidiary
717,095 -
12,500 65,500 Investment Income
4,942,639 Investment in Subsidiary

May 1,2020
952 Cash
7,708 134,753 Accumulated Depreciation- Delivery Equipment
Delivery Equipment
Gain on sale
26,250 60,833 To record sale of delivery equipment
333 1,333
 1,853,234 December 1,2020
109,700 Cash
381,000 Land
- Gain on sale of land
193,900 To record sale of land
-
1,950,945 June 1,2020
44,000 256,940 Store equipment
18,500 Cash
200,840 To record acquisition of store equipment
1,381,232 4,942,639
2,452,302 Investment income
Investment in Subsidiary
To record unrealized gain on land

Investment income
Investment in Subsidiary
To record unrealized gain on delivery equipment

Investment income
Investment in Subsidiary
To record unrealized gain on store equipment

Investment in subsidiary
Investment income
To record realized gain on sale of delivery equipment

Investment in subsidiary
Investment income
To record realized gain on sale of store equipment

JOURNAL ENTRIES
 BOOK OF THE SUBSIDIARY COMPANY
May 1, - December 31, 2020
Dividends Paid
Cash
Dividends paid by Subsidiary Company

December 31, 2020

Cash
Sales - Outsider
Sales - Parent
To record sales

Merchandise Inventory
Accounts Payable
Cash
To record purchases

Cost of Goods Sold - Outsider

Cost of Goods Sold - Parent
Merchandise Inventory
To record cost of goods sold

Operating Expenses
Accumulated Depreciation Expense - Store Equip.
Accumulated Depreciation Expense - Delivery Equip.
Accumulated Amortization Expense (15,000 / 10 yrs x 8/12 mons.)
Cash
To record operating expenses

May 1,2020
Delivery Equipment
Downstream Cash
 To record acqusition of delivery equipment

December 1,2020
Downstream Land
Cash
To record acquisition of land

June 1,2020
Upstream Cash
Accumulated Depreciation- Store Equipment
Store Equipment
Gain on sale
To record sale of store equipment

ELIMINATING ENTRIES
CONSOLIDATED WORKPAPER - 1ST YEAR OF ACQUISITIO

(E1)
Common Stocks
Additional Paid-In Capital
Retained Earnings
Investment in Subsidiary (220,000 x 80%)
Non Controlling Interest (220,000 x 20%)
To eliminate intercompanny investment and equity accounts of subsidiary on date of acq

(E2)
Patent
Inventories
Accumulated Depreciation - Store Equip.
Accumulated Depreciation - Delivery Equip.
Goodwill
Store Equipment
 Delivery Equipment
Investment in Subsidiary (250,000 - 176,000)
Non Controlling Interest ((74,000/80%) x 20%)
To allocate excess of cost over book value of identifiable assets acquired.

(E3)
Cost of Goods Sold
Accumulated Depreciation - Delivery Equipment
Goodwill Impairment Loss
Amortization Expense
Depreciation Expense
Inventories
Accumulated Depreciation - Store Equipment
Goodwill
Accumulated Amortization
To provide for 2020 impairment loss and depreciation and amortization on differences bet
and BV of subsidiary's identifiable assets and liabilities.

E3 COMPUTATION

Inventory sold
Store Equipment
Delivery Equipment
Patent
Total

(E4)
Investment Income
Non-Controlling Interest (32,000 x 20%)
Investment in Subsidiary
Dividends Paid - Subsidiary
To eliminate intercompany dividends and NCI share of dividends
 (E5)
Sales
Cost of Goods Sold
To eliminate intercompany downstream sales

(E6)
Sales
Cost of Goods Sold
To eliminate intercompany upstream sales

(E7)
Cost of Goods Sold
Inventory - Balance Sheet
To defer the downstream sales - unrealized profit in ending inventory until it is SOLD to o

(E8)
Cost of Goods Sold
Inventory - Balance Sheet
To defer the upstream sales - unrealized profit in ending inventory until it is SOLD to outs

(E9)
Gain on sale of delivery equipment
Delivery Equipment
Accumulated Depreciation-Delivery equipment
To eliminate downstream transaction

(E10)
Gain on sale of store equipment
Store Equipment
Accumulated Depreciation- Store equipment
To eliminate upstream transaction
(E11)
Gain on sale of land
Land
To eliminate gain and restore land in its original cost

(E12)
Accumulated Depreciation- Delivery equipment
Depreciation Expense
To adjust downstream depreciation expense

(E13)
Accumulated Depreciation- Store equipment
Depreciation expense
To adjust upstream depreciation expense

(E14)
Non Controlling Interest in Net Income of Subsidiary
Non Controlling Interest
To istablish non controlling interest in subsidiary's adjusted net income in 2021.

COMPUTATION OF E14
Net Income of Subsidiary
Less: Unrealized Profit in Ending Inventory of P Company (Upstream)
Unrealized gain on sale of store equipment (Upstream)
Add: Realized gain on sale of store equipment (Upstream)
Total
Less: Amortization of Allocated Excess (E3)
Total
Multipled by: NCI %
Non Controlling Interest in Net Income -Partial Goodwill
Less: NCI on impairment loss on full-goodwill
Non Controlling Interest in Net Income - full-goodwill
IES
COMPANY

250,000
81,000
169,000

25,600
25,600

852,000 COMPUTATION OF (JE3) May 01, - December 31, 2020

852,000 Inventory Sold
Store Equipment
12,362 Delivery Equipment
12,362 Patent
Goodwill Impairment loss
Totals
80,000 Multiplied by: CI %
80,000 TOTAL

3,500,000
3,124,531
375,469
PARENT
Store Equipment 280,000
1,879,394 32,392
 1,127,636
751,757 Delivery Equipme 120,000
- 70,000

1,608,511
191,489 SUBSIDIARY
1,800,000 Store Equipment 50,000
- 25,000

620,000 Delivery Equipme 44,000

21,399 71,750
6,667
591,935
USEFUL LIFE
Store Equipment 120
70,000
70,000 Delivery 96

18,398
18,398

25,290
25,290

71,750 Downstream
26,250
70,000
28,000
 Downstream
98,000
80,000
18,000

Upstream
32,292
32,292

18,000
18,000

28,000
28,000

12,000
12,000

3,733
3,733

1,012
1,012

IES
RY COMPANY

32,000
32,000

2,430,000
1,771,398
658,602

1,041,663
624,998
416,665

716,559
263,441
980,000

400,000
1,667 COGS Depreciation & TOTAL
13,233 Amortization
1,000 2,000
384,100 952
(333) 619
333
2,000 952 2,952
71,750
71,750 Investment in Subsidiary
 250,000 25,600
852,000 12,362
1,012 18,398
98,000 3,733 25,290
98,000 12,000
28,000
18,000

32,292 967,095
7,708
25,000
15,000 Remaining UL
5

TRIES 83
YEAR OF ACQUISITION

170,000
35,000
15,000
176,000
44,000
subsidiary on date of acquisition

5,000
2,000
15,000
16,500
78,000
5,000
 19,000
74,000
18,500

2,000
333
12,500
333
619
2,000
952
12,500
333
zation on differences between acquisition date FV

(Over)/Under Remaining
Valuation Useful Life
2,000 1
10,000 7
(2,500) 5
5,000 10

742,695
6,400
717,095
32,000
 Downstream
375,469
375,469

Upstream
658,602
658,602

18,398 Downstream
18,398
ntory until it is SOLD to outsider.

Upstream
31,613
31,613
ry until it is SOLD to outsider.

28,000 Downstream
1,750
26,250

15,000 Upstream
7,292
7,708
 Downstream
18,000
18,000

3,733 Downstream
3,733

Upstream
1,265
1,265

200,840
200,840
ncome in 2021.

1,065,000
31,613
15,000
1,265
1,019,652
2,952
1,016,700
20%
203,340
2,500
200,840
3) May 01, - December 31, 2020
2,000
952
(333)
333
12,500
15,452
80%
12,362

PARENT
120 18,667
83 2,732
 60 6,667
- 26,250
Investment in Subsidiary Investment Income
DR CR DR CR
SUBSIDIARY 250,000 25,600 50,000 -
120 1,667 - 70,000 -
- 7,708 180,000 25,600 50,000 -
154,400 - 50,000
96 3,667
60 9,567

Expired Years Remaining Life

37 83

36 60
Investment income
 12,362 852,000
18,398 1,012
25,290 3,733
12,000
28,000
18,000

742,695

Unrealized gain on Sale Yr1

28,000 3733

15,000 1265