Simple equity method adjustments, consolidated worksheet, Problem-Solution help

Problem 3-2 (LO 2) Simple equity method adjustments, consolidated worksheet.

On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. Solar has common stock, other paid-in capital in excess of par, and retained earnings of$50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar are as follows:

	2015	2016
Net income	$60,000	$90,000
Dividends	20,000	30,000

On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill.

Required

• 1. Using this information and the information in the following trial balances on December 31, 2016, prepare a value analysis and a determination and distribution of excess schedule:

	Paro Company	Solar Company
Inventory, December 31	100,000	50,000
Other Current Assets	136,000	180,000
Investment in Solar Company	400,000
Land	50,000	50,000
Buildingsand 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—Paro Company	(200,000)
Other Paid-In Capital in Excess of Par—Paro Company	(100,000)
Retained Earnings—Paro Company	(214,000)
Common Stock—Solar Company		(50,000)
Other Paid-In Capital in Excess of Par—Solar Company		(100,000)
Retained Earnings—Solar Company		(190,000)
Net Sales	(520,000)	(450,000)
Cost of Goods Sold	300,000	260,000
Operating Expenses	120,000	100,000
Subsidiary Income	(72,000)
Dividends Declared—Paro Company	50,000
Dividends Declared—Solar Company		30,000
Totals	0	0

• 2. Complete a worksheet for consolidated financial statements for 2016. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.

Problem 3-10 (LO3, 5) 100%, cost method worksheet, several adjustments, third year.

Refer to the preceding information for Paulcraft’s acquisition of Switzer’s common stock. Assume that Paulcraft pays $480,000 for 100% of Switzer common stock. Paulcraft uses the cost method to account for its investment in Switzer. Paulcraft and Switzer have the following trial balances on December 31, 2017 as shown on page 191.

	Paulcraft	Switzer
Cash	100,000	110,000
Accounts Receivable	90,000	55,000
Inventory	120,000	86,000
Land	100,000	60,000
Investment in Switzer	480,000
Buildings	800,000	250,000
Accumulated Depreciation	(220,000)	(80,000)
Equipment	150,000	100,000
Accumulated Depreciation	(90,000)	(72,000)
Current Liabilities	(60,000)	(102,000)
Bonds Payable.		(100,000)
Common Stock	(100,000)	(10,000)
Paid-In Capital in Excess of Par	(900,000)	(90,000)
Retained Earnings, January 1, 2017	(315,000)	(182,000)
Sales	(800,000)	(350,000)
Cost of Goods Sold	450,000	210,000
Depreciation Expense—Buildings	30,000	15,000
Depreciation Expense—Equipment	15,000	14,000
Other Expenses	140,000	68,000
Interest Expense		8,000
Dividend Income	(10,000)
Dividends Declared	20,000	10,000
Totals	0	0

Required

• 1. Prepare a value analysis and a determination and distribution of excess schedule for the investment in Switzer.
• 2. Complete a consolidated worksheet for Paulcraft Corporation and its subsidiary Switzer Corporation as of December 31, 2017. Prepare supporting amortization and income distribution schedules.

Complete Problem 3-2 and Problem 3-10 using the template attached.