Problem - On January 1, 20X8, Paul Company purchased 80% of the common stock of Smith Company for $300,000. On this date Smith had total owners' equity of $350,000. Any excess of cost over book value is attributed to a patent, to be amortized over 10 years.
During 20X8, Paul has accounted for its investment in Smith using the simple equity method.
During 20X8, Paul sold merchandise to Smith for $50,000, of which $10,000 is held by Smith on December 31, 20X8. Paul's gross profit on sales is 40%.
During 20X8, Smith sold some land to Paul at a gain of $10,000. Paul still holds the land at year end.
Paul and Smith qualify as an affiliated group for tax purposes and thus will file a consolidated tax return. Assume a 30% corporate income tax rate.
Required: Complete the following worksheet for consolidated financial statements for the year ended December 31, 20X8.
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Trial Balance
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Eliminations and
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Consol.
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Control.
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Consol.
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Parent
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Sub.
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Adjustments
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Income
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Retained
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Balance
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Account Titles
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Company
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Company
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Debit
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Credit
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Statement
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NCI
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Earnings
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Sheet
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Inventory, December 31
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100,000
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50,000
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Other Current Assets
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168,000
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250,000
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Invest in Smith Company
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348,000
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Land
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240,000
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100,000
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Buildings and Equipment
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300,000
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200,000
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Accumulated Depreciation
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-80,000
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-60,000
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Current Liabilities
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-150,000
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-30,000
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Long-Term Liabilities
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-200,000
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-100,000
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Common Stock - P Co.
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-100,000
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Other Paid-in Capital - P Co.
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-180,000
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Retained Earnings - P Co.
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-320,000
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Common Stock - S Co.
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-100,000
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Other Paid-in Capital - S Co.
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-100,000
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Retained Earnings - S Co.
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-150,000
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Net Sales
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-500,000
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-300,000
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Cost of Goods Sold
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300,000
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160,000
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Operating Expenses
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100,000
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80,000
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Subsidiary Income
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-56,000
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Gain on Sale of Land
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-10,000
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Dividends Declared - P Co.
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30,000
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Dividends Declared - S Co.
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10,000
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