Reference no: EM13950633

Cost method, later period, vertical worksheets. Harvard Company purchases a 90% interest in Bart Company for $720,000 on January 1, 20X1. The investment is accounted for under the cost method. At the time of the purchase, a building owned by Bart is understated by $180,000; it has a 20-year remaining life on the purchase date. The remaining excess is attributed to goodwill. The stockholders' equity of Bart Company on the purchase date is as follows:

Common stock ($10 par)	$350,000
Retained earnings	200,000
Total equity	$550,000

The following summarized statements are for the year ended December 31, 20X2. (Credit balance amounts are in parentheses.)

	Harvard	Bart
Income Statements:
Sales	(580,000)	(280,000)
Cost of Goods Sold	285,000	155,000
Operating Expenses	140,000	55,000
Depreciation Expense	72,000	30,000
Dividend Income	(9,000)
Net Income	(92,000)	(40,000)
Retained  Earnings Statements:
Retained Earnings, January 1, 20X2, Harvard	(484,000)
Retained Earnings, January 1, 20X2, Bart		(320,000)
Net Income	(92,000)	(40,000)
Dividends Declared	20,000	10,000
Retained Earnings, December 31, 20X2	(556,000)	(350,000)
Balance Sheets:
Cash	330,000	170,000
Inventory	260,000	340,000
Land	99,000	150,000
Building	800,000	500,000
Accumulated Depreciation-Building	(380,000)	(360,000)
Equipment	340,000	250,000
Accumulated Depreciation-Equipment	(190,000)	(90,000)
Investment in Bart Company	720,000
Current Liabilities	(123,000)	(60,000)
Bonds Payable		(200,000)
Common Stock, Harvard	(800,000)
Paid-In Capital in Excess of Par, Harvard.	(500,000)
Common Stock, Bart		(350,000)
Retained Earnings, December 31, 20X2.	(556,000)	(350,000)
Balance	0	0

Using the vertical format, prepare a consolidated worksheet for December 31, 20X2. Precede the worksheet with a value analysis and a determination and distribution of excess schedule. Include income distribution schedules to allocate the consolidated net income to the noncon- trolling and controlling interests.

Suggestion: Remember that all adjustments to retained earnings are to beginning retained earnings, and it is the beginning balance of the subsidiary retained earnings account that is subject to elimination. One of the adjustments to the parent retained earnings account is the cost- to-equity conversion entry. Be sure to follow the carrydown procedure to calculate the ending retained earnings balances.