Reference no: EM131324971

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.