On January 1, 2016, Parent Company purchased 90% of the common stock of Sub-A Company for $90,000 . On this date, Sub-A had common stock, other paid-in capital, and retained earnings of $10,000, $20,000, and $60,000 respectively

On January 1, 2017, Sub-A Company purchased 80% of the common stock of Sub-B Company for $64,000 . On this date, Sub-B Company had common stock, other paid-in capital, and retained earnings of $5,000, $30,000, and $40,000 respectively. Any excess of cost over book value on either purchase is due to a patent, to be amortized over ten years. Both Parent and Sub-A have accounted for their investments using the simple equity method. During 2017, Sub-B sold merchandise to Sub-A for $20,000, of which one-fourth is still held by Sub-B on December 31, 2017 . Sub-B's usual gross profit is 40%. During 2018, Sub-B sold more goods to Sub-A for $30,000, of which $10,000 is still on hand on December 31, 2018 . Required: Complete the Figure 8-9 worksheet for consolidated financial statements for 2018 .

Determination and Distribution of Excess Schedule for Sub-A:

Entity Parent NCI
Entity FV 100,000 90,000 10,000
Book value:

Common Stock ($10) 10,000

Paid-in Cap in Excess of Par 20,000

RE 1/1/16 60,000

Book value: 90,000 81,000 9,000
Excess-attributable to patent 10,000

Determination and Distribution of Excess Schedule for Sub-B:

Entity Parent NCI
Entity FV 80,000 64,000 16,000
Book value:

Common Stock ($10) 5,000

Paid-in Cap in Excess of Par 30,000

RE 1/1/16 40,000

Book value: 75,000 60,000 15,000
Excess-attributable to patent 5,000

For the worksheet solution, please refer to Answer 8-9.

Eliminations and Adjustments:

CY1 Eliminate the current-year entries made in the Parent's investment account and in the Sub-A income and dividends declared accounts.

EL1 Eliminate 90% of Sub-A Company equity balances at the beginning of the year against the Parent's investment account.

D1 Distribute the $10,000 excess of cost over book value to the patent.

A1 Amortize Sub A's patent over 10 years (10,000 / 10 - 1,000), with $2,000 for 2016 and 2017 charged to Parent and Sub A's retained earnings and $1,000 for 2018 to operating expenses.

CY2 Eliminate the current-year entries made in Sub A's investment account and in the Sub-B income and dividends accounts.

EL2 Eliminate 80% of Sub-B Company equity balances at the beginning of the year against Sub A's investment account.

D2 Distribute the $5,000 excess of cost over book value to the patent.

A2 Amortize the patent over 10 years (5,000 / 10 = 500), with $500 for 2017 charged 72% RE-Parent, 8% RE-Sub A, and 20% RE-Sub B and $500 for 2018 to operating expenses.

BI Recognize the $2,000 intercompany gross profit in the beginning inventory and allocate 72% RE-Parent, 8% RE-Sub A, and 20% RE-Sub B. (20,000 / 4 x 40%)

IS Eliminate the intercompany sales and purchases.

EI Defer the intercompany gross profit in the ending inventory. (10,000 x 40% = 4,000)

Income distribution schedule

Sub B NCI-B Sub A NCI-A Parent
Internally generated net income 12,500
20,000
30,000
Amortize B's patent (500)

Recognize profit in Beg Inv 2,000

Defer profit in End Inventory (4,000)

Adjusted income --- Sub B 10,000 2,000 8,000

Amortize A's patent

(1,000)

Adjusted income --- Sub A

27,000 2,700 24,300
Controlling interest net income

54,300