On January 1, 20X1, Parent Company acquired 80% of the common stock of Subsidiary Company for $560,000 On this. date Subsidiary had total owners' equity of $540,000, including retained earnings of $240,000. During 20X1, Subsidiary had net income of $60,000 and paid no dividends.

Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill.

During 20X1 and 20X2, Parent has appropriately accounted for its investment in Subsidiary using the cost method.

On January 1, 20X2, Parent held merchandise acquired from Subsidiary for $10,000. During 20X2, Subsidiary sold merchandise to Parent for $100,000, of which $20,000 is held by Parent on December 31, 20X2. Subsidiary's usual gross profit on affiliated sales is 40%.

On December 31, 20X2, Parent still owes Subsidiary $20,000 for merchandise acquired in December.

On January 1, 20X2, Parent sold to Subsidiary some equipment with a cost of $50,000 and a book value of $20,000. The sales price was $40,000. Subsidiary is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method.

Required:

Complete the Figure 4-4 worksheet for consolidated financial statements for the year ended December 31, 20X2.

To complete the Figure 4-4 worksheet for consolidated financial statements for the year ended December 31, 20X2, we need to follow these steps:

1. Start by calculating the non-controlling interest (NCI) in Subsidiary's net income for 20X2. Since Parent owns 80% of Subsidiary, the NCI will be 20% (100% - 80%). The net income of Subsidiary in 20X2 is $60,000, so the NCI in net income will be $60,000 * 20% = $12,000.

2. Calculate the consolidated net income by adding the net income of Parent ($0) and the NCI in Subsidiary's net income ($12,000). The consolidated net income will be $0 + $12,000 = $12,000.

3. Calculate the consolidated retained earnings by adding the retained earnings of Parent ($0), the net income of Parent ($0), the retained earnings of Subsidiary in 20X2 ($240,000), and the NCI in Subsidiary's net income in 20X2 ($12,000). The consolidated retained earnings will be $0 + $0 + $240,000 + $12,000 = $252,000.

4. Determine the cost of goods sold (COGS) for the consolidated statement. We know that Subsidiary sold $100,000 worth of merchandise to Parent, and Subsidiary's usual gross profit on affiliated sales is 40%. Therefore, the COGS will be $100,000 * (100% - 40%) = $60,000.

5. Calculate the consolidated net sales by subtracting the COGS from the sales. The consolidated net sales will be $100,000 - $60,000 = $40,000.

6. Deduct any outstanding receivables from Subsidiary. We know that Parent still owes Subsidiary $20,000 for merchandise acquired in December. Therefore, the consolidated net sales will be $40,000 - $20,000 = $20,000.

7. Calculate the consolidated cost of goods sold (COGS) for the merchandise on hand. We know that Parent held $20,000 worth of merchandise acquired from Subsidiary on December 31, 20X2. Therefore, the consolidated COGS will also be $20,000.

8. Calculate the consolidated gross profit by subtracting the consolidated COGS from the consolidated net sales. The consolidated gross profit will be $20,000 - $20,000 = $0.

9. Calculate the gain/loss on intercompany sale of equipment. We know that Parent sold equipment to Subsidiary for $40,000, which had a book value of $20,000 and a cost of $50,000. Therefore, the gain/loss will be $40,000 - $20,000 = $20,000 (since the book value is less than the sales price).

10. Calculate the consolidated equity of Parent by adding the retained earnings of Parent ($0) and the gain/loss on the intercompany sale of equipment ($20,000). The consolidated equity of Parent will be $0 + $20,000 = $20,000.

11. Calculate the consolidated equity of NCI by adding the NCI in Subsidiary's net income ($12,000) and the NCI in the gain/loss on the intercompany sale of equipment ($20,000). The consolidated equity of NCI will be $12,000 + $20,000 = $32,000.

12. Calculate the consolidated equity by adding the consolidated equity of Parent ($20,000) and the consolidated equity of NCI ($32,000). The consolidated equity will be $20,000 + $32,000 = $52,000.

The completed Figure 4-4 worksheet for consolidated financial statements for the year ended December 31, 20X2 would look like this:

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Consolidated Income Statement
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Net Sales: $20,000
Cost of Goods Sold: $20,000
Gross Profit: $0
Net Income: $12,000

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Consolidated Retained Earnings
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Beginning retained earnings: $0
Add: Net Income: $12,000
Retained Earnings: $12,000

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Consolidated Equity
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Parent Equity: $20,000
NCI Equity: $32,000
Consolidated Equity: $52,000