Reference no: EM133538367
Case: On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $392,400. Sheridan's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $81,700 and also had unpatented technology (15-year estimated remaining life) undervalued by $57,000. Any remaining excess acquisition-date fair value was assigned to an indefinite-lived trade name. Since acquisition, Pulaski has applied the equity method to its Investment in Sheridan account. At year-end, there are no intra-entity payables or receivables.
Intra-entity inventory sales between the two companies have been made as follows:
| Year |
Cost to Pulaski |
Transfer Price to Sheridan |
Ending Balance (at transfer price) |
| 2023 |
$130,800 |
$163,500 |
$54,500 |
| 2024 |
113,400 |
151,200 |
37,800 |
The individual financial statements for these two companies as of December 31, 2024, and the year then ended follow:
| Items |
Pulaski, Incorporated |
Sheridan, Incorporated |
| Sales |
($741,000) |
($377,000) |
| Cost of goods sold |
487,000 |
230,200 |
| Operating expenses |
199,020 |
78,400 |
| Equity in earnings in Sheridan |
-35,308 |
0 |
| Net income |
($90,288) |
($68,400) |
| Retained earnings, 1/1/24 |
($792,000) |
($283,800) |
| Net income |
-90,288 |
-68,400 |
| Dividends declared |
49,100 |
19,600 |
| Retained earnings, 12/31/24 |
($833,188) |
($332,600) |
| Cash and receivables |
$283,600 |
$151,400 |
| Inventory |
266,400 |
132,000 |
| Investment in Sheridan |
429,006 |
0 |
| Buildings (net) |
347,000 |
206,500 |
| Equipment (net) |
247,700 |
90,100 |
| Patents (net) |
0 |
24,800 |
| Total assets |
$1,573,706 |
$604,800 |
| Liabilities |
($440,518) |
($172,200) |
| Common stock |
-300,000 |
-100,000 |
| Retained earnings, 12/31/24 |
-833,188 |
-332,600 |
| Total liabilities and equities |
($1,573,706) |
($604,800) |
Required:
Show how Pulaski determined the $429,006 Investment in Sheridan account balance. Assume that Pulaski defers 100 percent of downstream intra-entity profits against its share of Sheridan's income.
Prepare an consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2024.