Interperiod purchase. Jeter Corporation purchased 80% of the outstanding stock of Summer Company for $275,000 on May 1, 20X1. Summer Company had the following stockholders’ equity:
|
Common stock ($5 par) |
$150,000 |
|
Retained earnings |
50,000 |
|
Total equity |
$200,000 |
The fair values of Summer’s assets and liabilities agreed with the book values, except for the equipment and the building. The equipment was undervalued by $10,000 and was thought to have a 5 year life; the building was undervalued by $50,000 and was thought to have a 20 year life. The remaining excess of cost over book value is attributable to goodwill. Jeter Corporation uses the simple equity method to record its investments.
Since the purchase date, both firms have operated separately, and no intercompany transactions have occurred. Summer Company did not close its books on the date of acquisition. Therefore, the income amounts in the trial balance reflect amounts earned during the whole year. Income is earned evenly throughout the year. The separate trial balances of the firms on December 31, 20X1, are as follows:
|
Cash |
296,600 |
97,000 |
|
Land |
160,000 |
90,000 |
|
Buildings |
225,000 |
135,000 |
|
Accumulated Depreciation—Building |
100,000 |
50,000 |
|
Equipment |
450,000 |
150,000 |
|
Accumulated Depreciation—Equipment |
115,000 |
60,000 |
|
Investment in Summer Company |
284,600 |
|
|
Liabilities |
480,000 |
150,000 |
|
Common Stock ($100 par) |
400,000 |
|
|
Common Stock ($5 par) |
150,000 |
|
|
Paid In Capital in Excess of Par |
40,000 |
|
|
Retained Earnings, Jan 1, 20X1 |
251,600 |
50,000 |
|
Sales |
460,000 |
120,000 |
|
Cost of Goods Sold |
220,000 |
60,000 |
|
Other Expenses |
210,000 |
48,000 |
|
Subsidiary Income |
9,600 |
|
|
Dividends Declared |
10,000 |
|
|
Total |
0 |
0 |
Required
1. Prepare a determination and distribution of excess schedule for the investment.
2. Prepare the 20X1 consolidated worksheet. Include columns for the eliminations and adjustments, the consolidated income statement, the NCI, the controlling retained earnings, and the consolidated balance sheet. Prepare supporting income distribution schedules as well.
3. Prepare the 20X1 consolidated statements, including the income statement, retained earnings statement, and balance sheet.