Worksheet for nontaxable exchange with tax loss carryover. The trial balances of Campton Corporation and Deer Corporation as of December 31, 20X1, are as follows:
|
Campton Corporation |
Deer Corporation |
|
|
Current Assets |
167,000 |
80,000 |
|
Land |
400,000 |
100,000 |
|
Building and Equipment (net) |
900,000 |
240,000 |
|
Investment in Deer Corporation |
625,600 |
|
|
Current Tax Liability |
4,200 |
6,000 |
|
Other Current Liabilities |
130,000 |
100,000 |
|
Common Stock ($5 par) |
500,000 |
|
|
Common Stock ($50 par) |
200,000 |
|
|
Paid In Capital in Excess of Par |
750,000 |
|
|
Retained Earnings, Jan 1, 20X1 |
650,000 |
100,000 |
|
Sales |
309,000 |
150,000 |
|
Subsidiary Income |
12,600 |
|
|
Cost of Goods Sold |
170,000 |
80,000 |
|
Expenses |
89,000 |
50,000 |
|
Provision for Tax |
4,200* |
6,000 |
|
Total |
0 |
0 |
*$15,000 tax liability ($50,000 income X 30%) $10,800 tax loss carryover ($40,000 X 90% X 30%) On January 1, 20X1, Campton purchased 90% of the outstanding stock of Deer Corporation for $600,000, plus direct acquisition costs of $13,000. The acquisition was a tax free exchange for the seller. At the purchase date, Deer’s equipment was undervalued by $100,000 and had a remaining life of 10 years. All other assets had book values that approximated their fair values. Deer Corporation had a tax loss carryover of $200,000, of which $40,000 was utilizable in 20X1 and the balance in future periods. The tax loss carryover is expected to be fully utilized. Any remaining excess is considered to be goodwill. A tax rate of 30% applies to both companies.
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.
Suggestion: A deferred tax liability results from the increase in the fair value of the equipment. As the added depreciation is recognized on the equipment, the deferred tax liability becomes payable. Note that income distribution schedules record net of tax income. Therefore, be sure that any adjustments to the income distribution schedules consider tax where appropriate.