Sophisticated equity method, ?rst year, eliminations, state- ments. (Note: Read carefully, as this is not the same as Exercise 3.) Pepper Company acquires an 80% interest in Sultan Company for $250,000 on January 1, 20X1, when Sultan Company has the following balance sheet:
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Assets
|
|
Liabilities and Equity
|
|
|
Current assets
|
$100,000
|
Current liabilities
|
$ 50,000
|
|
Depreciable ?xed assets
|
200,000
|
Common stock ($10 par)
|
100,000
|
|
|
|
Retained earnings
|
150,000
|
|
Total assets
|
$300,000
|
Total liabilities and equity
|
$300,000
|
Any excess of the price paid over book value is attributable only to the ?xed assets, which have a 10-year remaining life. Pepper uses the sophisticated equity method to record the investment in Sultan Company.
The following trial balances of the two companies are prepared on December 31, 20X1:
|
|
Pepper
|
Sultan
|
|
Current Assets
|
60,000
|
130,000
|
|
Depreciable Fixed Assets
|
400,000
|
200,000
|
|
Accumulated Depreciation
|
(106,000)
|
(20,000)
|
|
Investment in Sultan Company
|
261,000
|
|
|
Current Liabilities
|
(60,000)
|
(40,000)
|
|
Common Stock ($10 par)
|
(300,000)
|
(100,000)
|
|
Retained Earnings, January 1, 20X1
|
(200,000)
|
(150,000)
|
|
Sales
|
(150,000)
|
(100,000)
|
|
Expenses
|
110,000
|
75,000
|
|
Subsidiary Income (from Sultan Company)
|
(15,000)
|
|
|
Dividends Declared
|
|
5,000
|
|
Totals
|
0
|
0
|
1. Prepare a determination and distribution of excess schedule for the investment (a value analysis is not needed).
2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated worksheet.
3. Prepare the 20X1 consolidated income statement and its related income distribution schedule.
4. Prepare the 20X1 statement of retained earnings.
5. Prepare the 20X1 consolidated balance sheet.