Peninsula Company acquired all the outstanding stocks of Sandbar Corporation on January 1, 2011, for $15,000,000, when Sandbar's stockholder equity consisted of $5,000,000 capital stock and $2,000,000 retained earnings. The price reflected a $500,000 undervaluation of Sandbar's inventory (sold in 2011) and a $3,500,000 undervaluation of Sandbar's buildings (remaining useful life seven years).
During 2012, Sandbar sold a piece of land that cost $1,000,000 to Peninsula for $1,500,000. Peninsula resold the land for $2,200,000 during 2015.
Peninsula sells inventory to Sandbar on a regular basis, as follows (in thousands):
|
|
Sales to Sandbar
|
Cost to Peninsula
|
% unsold by Sandbar
at year end
|
% unpaid by
Sandbar at year end
|
|
2011
|
500
|
300
|
0
|
0
|
|
2012
|
1,000
|
600
|
30
|
50
|
|
2013
|
1,200
|
720
|
18
|
30
|
|
2014
|
1,000
|
600
|
25
|
20
|
|
2015
|
1,500
|
900
|
20
|
20
|
Sandbar sold equipment with a book value of $800,000 to Peninsula on January 1, 2015, for $1,600,000. This equipment had a remaining useful life of four years at the time of the sale.
Peninsula uses the equity method to account for its investment in Sandbar. The financial statements for Peninsula and Sandbar are summarized as follows (in thousands):
Combined Income and Retained earnings Statement for the year ended December 31, 2015
|
Sales
|
Peninsula
26,000
|
Sandbar
11,000
|
|
Gain on land
Gain on equipment Income from Sandbar
|
700
1,380
|
800
|
|
Cost of Sales
|
(15,000)
|
(5,000)
|
|
Depreciation expense
|
(3,700)
|
(2,000)
|
|
Other Expenses
|
|
(4,280) (2,800)
|
|
|
Net Income
|
5,100 2,000
|
|
Add: Beginning R/E
|
|
12,250 4,000
|
|
Deduct: Dividends
|
|
(3,000) (1,000)
|
| |
R/E December 31 |
14,350 |
5,000 |
|
Balance Sheet at December 31, 2015
|
Peninsula
|
Sandbar
|
|
Cash
|
1,170
|
500
|
|
A/R, net
|
2,000
|
1,500
|
|
Inventories
|
5,000
|
2,000
|
|
Land
|
4,000
|
1,000
|
|
Building, net
|
15,000
|
4,000
|
|
Equipment, net
|
10,000
|
4,000
|
|
Investment in Sandbar 14,280
Total Assets 51,450 13,000
|
|
A/P
|
4,100
|
1,000
|
|
Other Liabilities
|
7,000
|
2,000
|
|
Capital Stocks
|
26,000
|
5,000
|
|
Retained earnings 14,350 5,000
Total equities 51,450 13,000
|
1. Determine the schedule of amortization of ECOBV for the years 2011 to 2015
2. Reconstruct the balance for the account "Investment in Sandbar" at December 31, 2015. Usethe T-account to present the calculations
3. Reconstruct the balance of the account "Income from Sandbar" for the year 2015. Use the Taccountto present the calculations
4. Prepare consolidation adjustment entries
5. Complete a consolidated worksheet for Peninsular Company and its subsidiary SandbarCompany as of December 31, 2015.