Alternative investment account methods, effect on eliminations. On January 1, 20X1, Peter Company purchased an 80% interest in Saul Company by issuing 10,000 of its common stock shares with a par value of $10 per share and a fair value of $72 per share. The direct acquisition costs were $20,000. At the time of the purchase, Saul had the following balance sheet:
|
Assets |
Liabilities and Equity |
||
|
Current assets |
$100,000 |
Current liabilities |
$80,000 |
|
Investments |
150,000 |
Bonds payable |
250,000 |
|
Land |
120,000 |
Common stock ($10 par) |
100,000 |
|
Building (net) |
350,000 |
Paid in capital in excess of par |
200,000 |
|
Equipment (net) |
160,000 |
Retained earnings |
250,000 |
|
Total assets |
$880,000 |
Total liabilities and equity |
$880,000 |
Appraisals indicate that book values are representative of fair values with the exception of land and buildings. The land has a fair value of $190,000, and the building is appraised at $450,000. The building has an estimated remaining life of 20 years. Any remaining excess is goodwill. The following summary of Saul’s retained earnings applies to 20X1 and 20X2:
|
Balance, January 1, 20X1 |
$250,000 |
|
Net income for 20X1 |
60,000 |
|
Dividends paid in 20X1 |
10,000 |
|
Balance, December 31, 20X1 |
$300,000 |
|
Net income for 20X2 |
45,000 |
|
Dividends paid in 20X2 |
10,000 |
|
Balance, December 31, 20X2 |
$335,000 |
Required
1. Prepare a determination and distribution of excess schedule for the investment in Saul Company. As a part of the schedule, indicate annual amortization of excess adjustments.
2. For 20X1 and 20X2, prepare the entries that Peter would make concerning its investment in Saul under the simple equity, sophisticated equity, and cost methods. It is suggested that you set up a worksheet with side by side columns for each method so that you can easily compare the entries.
3. For 20X1 and 20X2, prepare the worksheet elimination that would be made on a consolidated worksheet under the simple equity, sophisticated equity, and cost methods. It is suggested that you set up a worksheet with side by side columns for each method so that you can easily compare the entries.