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.