Prepare a value analysis and an evaluation and distribution

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Reference no: EM134056

Question :

Refer to the preceding facts for the Purple's acquisition of Salmon common stock. On January 1, 2012, Salmon held merchandise sold to it by Purple for $14,000. This beginning inventory had an applicable gross profit of 40%. During 2012, Purple sold merchandise to Salmon for $60,000. On December 31, 2012, Salmon held $12,000 of this merchandise in its inventory. This ending inventory had an applicable gross profit of 35%. Salmon owed Purple $8,000 on December 31 as a result of the intercompany sale.

Purple held $12,000 worth of merchandise in its beginning inventory from sales from Salmon. This beginning inventory had an applicable gross profit of 25 percent. During 2012, Salmon sold merchandise to Purple for $30,000. Purple held $16,000 of this inventory at the end of the year. This ending inventory had an applicable gross profit of 30 percent. Purple owed Salmon $6,000 on December 31 as a result of this intercompany sale.

On 1st January, 2011, Purple sold equipment to Salmon at a profit of $40,000. Depreciation on this equipment is computed over an 8-year life using the straight-line method.

On 1st January, 2012, Salmon sold equipment with a book value of $30,000 to Purple for $54,000. This equipment has a 6-year life and is depreciated using the straight-line technique.

Purple and Salmon had the subsequent trial balances on 31st December, 2012:

                                                                        Purple Company                  Salmon Company

Cash . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,400                               57,500

Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . .130,000                            36,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000                            76,000

Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000                             100,000

Investment in Salmon Co . . . . . . . . . . . . . . .  . .. . . 381,200

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000                            150,000

Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . (250,000)                          (60,000)

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,000                            220,000

Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . (115,000)                          (80,000)

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000

Accounts Payable..................................................... (70,000)                             (78,000)

Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200,000)

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)                           (10,000)

Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . (800,000)                            (90,000)

Retained Earnings, January 1, 2012. . . . . . . . . . . . . .(325,000)                           (142,000)

Sales . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000)                           (350,000)

Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000                           208,500

Depreciation Expense-Buildings . . . . . . . . . . . . . . . . . 30,000                               5,000

Depreciation Expense-Equipment. . . . . . . . . . . . . .. . . 25,000                               23,000

Other Expenses . ... . .  . . . . . . . . . . . . . . . . . . . . . . . . 140,000                             92,000

Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000

Gain on Sale of Fixed Assets . . . . . . . . . . . . . . . . . . . . . . ....... (24,000)

Subsidiary Income.................................................................... (23,600)

Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000                                 10,000

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0

1. Prepare a value analysis and an evaluation and distribution of excess schedule for the investment in Salmon.

2. Complete a consolidated worksheet for Purple Company and its subsidiary Salmon Company as of 31st December, 2012. Prepare supporting amortization and income distribution schedules.

Reference no: EM134056

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