Reference no: EM132546074

Parent acquired Subsidiary on January 2, 2019 at a price $400,000 in excess of book value. Of that excess, $160,000 was allocated to an unrecorded Customer List with a 8- year life, with the remainder to Goodwill. The parent uses the equity method to account for its investment in its subsidiary. On January 2, 2022, Subsidiary sold equipment to Parent for $120,000. The equipment had a cost of $85,000 and accumulated depreciation of $40,000. The remaining life of the equipment was estimated at 8 years.

Financial statements for the two companies for the year ended December 31, 2023 are presented below.

                                                             Parent                          Subsidiary

Sales revenue                             $687,000                     $750,000

Cost of goods sold                      -425,000                    -350,000

Gross profit                                262,000                     400,000

Operating expenses                    -125,000                    -36,700

Income(loss) from sub                 352,675                   _________

Net Income                                 $489,675                    $363,300

                                                            Parent                           Sub

Retained Earnings, 1/1/23              $620,400                  $240,000

Net income                                  489,675                  363,300

Dividends                                     -98,000                   -12,000

Retained Earnings, 12/31/23           $1,012,075                $591,300

                                                        Parent                     Sub

Cash and receivables              $850,000                   $750,000

Inventory                               125,000                   265,000

Equity investment 1,249,450

Property, plant & equipment (Net)  1,387,625          1,337,860

Total Assets                               $3,612,075                 $2,352,860

                                                                   Parent                         Sub

Accounts payable                              $55,000                $311,210

Accrued liabilities                                450,000                370,650

Notes payable                                     1,250,000             665,300

Common stock                                       95,000               183,950

Additional paid-in capital                          750,000                230,450

Retained Earnings, 12/31/23                     1,012,075              591,300

Total Liabilities and Equities                      $3,612,075            $2,352,860

Question a. Prepare the journal entries on the books of Parent and Subsidiary to record the equipment sale.

Question b. Compute the amount of unrealized gain at January 1, 2023.

Question c. Prepare entries required under the equity method on Parent's pre-consolidation books for 2023. d. Prepare the consolidation entries for 2023.