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.