You are consolidating the trial balances of a parent and its wholly-owned subsidiary at December 31, 2021. The subsidiary reports net income of $80,000 for 2021. Following is information on unconfirmed intercompany profits related to land, merchandise, and depreciable asset transfers:
$$\begin{array} { l c c }
& \text { January 1, 2021 } & \text { December 31, 2021 } \
\text { Land } & \$ 90,000 & \$ 90,000 \
\text { Inventory } & 40,000 & 45,000 \
\text { Equipment } & 140,000 & 120,000
\end{array}$$ The subsidiary sold the land to the parent in 2019, and the parent still holds the land. The parent sells inventory to its subsidiary; total sales between the parent and subsidiary were $600,000, valued at the price charged to the subsidiary. The subsidiary sold the equipment (remaining life 10 years, straight-line) to the parent at a gain of $200,000 on January 1, 2018. The parent still holds the equipment. On its own books, the parent reports its investment in the subsidiary using the complete equity method. There are no revaluation write-offs for 2021.
Required
a. Calculate equity in net income for 2021, reported on the parent's books.
b. Prepare the eliminating entries (I) to consolidate the trial balances of the parent and subsidiary at December 31, 2021.

Question

You are consolidating the trial balances of a parent and its wholly-owned subsidiary at December 31, 2021. The subsidiary reports net income of $80,000 for 2021. Following is information on unconfirmed intercompany profits related to land, merchandise, and depreciable asset transfers:
 $$\begin{array} { l c c } 
& \text { January 1, 2021 } & \text { December 31, 2021 } \
\text { Land } & \$ 90,000 & \$ 90,000 \
\text { Inventory } & 40,000 & 45,000 \
\text { Equipment } & 140,000 & 120,000
\end{array}$$ The subsidiary sold the land to the parent in 2019, and the parent still holds the land. The parent sells inventory to its subsidiary; total sales between the parent and subsidiary were $600,000, valued at the price charged to the subsidiary. The subsidiary sold the equipment (remaining life 10 years, straight-line) to the parent at a gain of $200,000 on January 1, 2018. The parent still holds the equipment. On its own books, the parent reports its investment in the subsidiary using the complete equity method. There are no revaluation write-offs for 2021.
Required
a. Calculate equity in net income for 2021, reported on the parent's books.
b. Prepare the eliminating entries (I) to consolidate the trial balances of the parent and subsidiary at December 31, 2021.

Quizplus · Accepted Answer

The Answer of You are consolidating the trial balances of a parent and its wholly-owned subsidiary at December 31, 2021. The subsidiary reports net income of $80,000 for 2021. Following is information on unconfirmed intercompany profits related to land, merchandise, and depreciable asset transfers:
 $$\begin{array} { l c c } 
& \text { January 1, 2021 } & \text { December 31, 2021 } \
\text { Land } & \$ 90,000 & \$ 90,000 \
\text { Inventory } & 40,000 & 45,000 \
\text { Equipment } & 140,000 & 120,000
\end{array}$$ The subsidiary sold the land to the parent in 2019, and the parent still holds the land. The parent sells inventory to its subsidiary; total sales between the parent and subsidiary were $600,000, valued at the price charged to the subsidiary. The subsidiary sold the equipment (remaining life 10 years, straight-line) to the parent at a gain of $200,000 on January 1, 2018. The parent still holds the equipment. On its own books, the parent reports its investment in the subsidiary using the complete equity method. There are no revaluation write-offs for 2021.
Required
a. Calculate equity in net income for 2021, reported on the parent's books.
b. Prepare the eliminating entries (I) to consolidate the trial balances of the parent and subsidiary at December 31, 2021.

You Are Consolidating the Trial Balances of a Parent and Its