Shelby Corporation purchases 90% of the outstanding stock of Borner Company on January 1, 2012, for $603,000 cash. At that time, Borner has the following stockholders' equity balances:
Common Stock = $200,000
Paid-In Capital in Excess of Par = $80,000
Retained Earnings = $300,000
All book values approximate fair values except for the plant assets (undervalued by $50,000 and with an estimated remaining life of 10 years). Any remaining excess is goodwill.
DeNoma Company acquires a 60% interest in Shelby on January 1, 2014, for $750,000. At this time, Shelby has consolidated shareholders' equity of:
Common Stock = $500,000
Paid-In Capital in Excess of Par = $150,000
Controlling Retained Earnings = $500,000 (not including amortization of excess price applicable to investment in Borner).
At that time, it is also determined that Shelby's plant assets are undervalued by $50,000 and have a 10-year remaining useful life. Any remaining excess is goodwill.
Intercompany merchandise sales from Borner to Shelby for 2014 are:
Borner's goods in Shelby's beginning inventory = $7,500
Sales during 2014 = $125,000
Borner's goods in Shelby's ending inventory = $10,000
Gross profit on intercompany sales = 80%
On January 1, 2014, Shelby sells plant assets with a cost of $80,000 and accumulated depreciation of $45,000 to DeNoma for $50,000. Remaining useful life on the date of sale is estimated to be 5 years.
Shelby & DeNoma use the partial equity method to account for their investments. The trial balances on December 31, 2015 are as follows:
| DeNoma Company |
Shelby Corporation |
Borner Company |
| Inventory |
75,000 |
60,000 |
40,000 |
| Other Current Assets |
900,000 |
2,000 |
390,000 |
| Plant Assets |
1,200,000 |
800,000 |
600,000 |
| Accumulated Depreciation |
(450,000) |
(300,000) |
(200,000) |
| Investment in Shelby Corp |
894,000 |
| Investment in Borner Comp |
828,000 |
| Common Stock |
(1,500,000) |
(500,000) |
(200,000) |
| Paid-In Capital in Excess of Par |
(150,000) |
(80,000) |
| Retained Earnings |
(922,000) |
(620,000) |
(500,000)
|
| Sales |
(900,000) |
(700,000) |
(600,000) |
| Cost of Goods Sold |
570,000 |
425,000 |
400,000 |
| Expenses |
205,000 |
200,000 |
150,000 |
| Subsidiary Income |
(72,000) |
(45,000) |
| Totals |
0 |
0 |
0 |
REQUIRED:
Prepare an allocation & amortization schedule for Shelby's investment in Borner and DeNoma's investment in Shelby. (Hint:Shelby's consolidated retained earnings on January 1, 2014 does not include amortization of excess price applicable to investment in Borner).