Sophisticated equity method adjustments, consolidated worksheet. (This is the same as Problem 3 2, except the sophisticated equity method is used.) On January 1, 20X1, Peres Company purchased 80% of the common stock of Soll Company for $308,000. On this date, Soll had common stock, other paid in capital, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Soll Company were as follows:
|
20X1 |
20X2 |
|
|
Net income |
$60,000 |
$90,000 |
|
Dividends |
20,000 |
30,000 |
On January 1, 20X1, the only tangible assets of Soll that were undervalued were inventory and the building. Inventory, for which FIFO is used, was worth $10,000 more than cost. The inventory was sold in 20X1. The building, which is worth $25,000 more than book value, has a remaining life of 10 years, and straight line depreciation is used. The remaining excess of cost over book value is attributable to goodwill.
Required
1. Using this information or the information in the following trial balances, prepare a determination and distribution of excess schedule.
2. Peres Company carries the investment in Soll Company under the sophisticated equity method. In general journal form, record the entries that would be made to apply the equity method in 20X1 and 20X2.
3. Compute the balance that should appear in Investment in Soll Company and in Soll Income on December 31, 20X2 (the second year). Fill in these amounts on Peres Company’s trial balance for 20X2.
4. Complete a worksheet for consolidated financial statements for 20X2. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and balance sheet.
|
Peres Company |
Soll Company |
|
|
Inventory, December 31 |
100,000 |
50,000 |
|
Other Current Assets |
148,000 |
180,000 |
|
Investment in Soll Company |
Note 1 |
|
|
Land |
50,000 |
50,000 |
|
Buildings and Equipment |
350,000 |
320,000 |
|
Accumulated Depreciation |
100,000 |
60,000 |
|
Goodwill |
||
|
Other Intangibles |
20,000 |
|
|
Current Liabilities |
120,000 |
40,000 |
|
Bonds Payable |
100,000 |
|
|
Other Long Term Liabilities |
200,000 |
|
|
Common Stock, P Company |
200,000 |
|
|
Other Paid In Capital, P Company |
100,000 |
|
|
Retained Earnings, P Company |
204,000 |
|
|
Common Stock, S Company |
50,000 |
|
|
Other Paid In Capital, S Company |
100,000 |
|
|
Retained Earnings, S Company |
190,000 |
|
|
Net Sales |
520,000 |
450,000 |
|
Cost of Goods Sold |
300,000 |
260,000 |
|
Operating Expenses |
120,000 |
100,000 |
|
Soll Income |
Note 1 |
|
|
Dividends Declared, P Company |
50,000 |
|
|
Dividends Declared, S Company |
30,000 |