Problem 3-P6.10

Please solve this problem below.

Make sure you are setting up a data field and using Excel to develop a solution.

MC Enterprises began business some years ago as a franchiser of fast food restaurants known as The Mighty Chicken. Initially, all franchises were independently owned, but eventually the company began to buy individual franchises from owners who wanted to sell. MC Enterprises formed a wholly-owned subsidiary, Mighty Chicken Shops, to own and operate these repurchased franchises. Currently, there are 46 independently owned franchises, and 33 company-owed franchises held by the subsidiary. Following are condensed trial balances for MC Enterprises (the parent) and Mighty Chicken Shops (the subsidiary) at December 31, 2019:

Mighty Chicken Shops’ cost of goods sold of $57,000,000 consisted of beginning inventory $10,000,000, purchases off $60,000,000, and ending inventory of $13,000,000. The subsidiary makes all of its purchases from the parent; the transfer price includes a 20 percent gross margin on sales for MC Enterprises. The gross margin percentage has been constant for several years. All of Mighty Chicken shops’ franchise fees and interest expense were paid  to MC Enterprises and all of the subsidiary’s debt is owed to the parent. MC Enterprises provides equipment at cost to all its franchisees, including those owned by Mighty Chicken Shops. The subsidiary currently has such equipment originally costing $20,000,000. On average, the equipment has a ten-year life and is currently half depreciated.

Required

Prepare appropriate consolidation eliminating entries (I) and (E) at December 31, 2019. There is no need to reverse equity in net income, as the parent did not record it. There are no revaluations since MC Enterprises formed Mighty Chicken Shops rather then acquiring it. Mighty Chicken Shops paid no dividends in 2019.