Worksheet, consolidated taxation, simple equity, inventory, ?xed asset sale, later year. Refer to the preceding facts for Penstar's acquisition of Sonar common stock. Penstar uses the simple equity method to account for its investment in Sonar. During 20X3, Sonar sells $40,000 worth of merchandise to Penstar. As a result of these inter- company sales, Penstar holds beginning inventory of $16,000 and ending inventory of $10,000 of merchandise acquired from Sonar. At December 31, 20X3, Penstar owes Sonar $8,000 from merchandise sales. Sonar has a gross pro?t rate of 30%.
During 20X3, Penstar sells $60,000 worth of merchandise to Sonar. Sonar holds $15,000 of this merchandise in its ending inventory. Sonar owes $10,000 to Penstar as a result of these intercompany sales. Penstar has a gross pro?t rate of 40%.
On January 1, 20X1, Penstar sells equipment having a net book value of $50,000 to Sonar for $90,000. The equipment has a 5-year useful life and is depreciated using the straight-line method.
On January 1, 20X3, Sonar sells equipment to Penstar at a pro?t of $25,000. The equip- ment has a 5-year useful life and is depreciated using the straight-line method.
Neither company has provided for income tax. The companies qualify as an af?liated group and, thus, will ?le a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a nontaxable exchange.
On December 31, 20X3, Penstar and Sonar have the following trial balances:
|
|
Penstar Company
|
Sonar Company
|
|
Cash .
|
95,814
|
80,000
|
|
Accounts Receivable .
|
150,600
|
100,000
|
|
Inventory
|
115,000
|
120,000
|
|
Land. .
|
100,000
|
150,000
|
|
Investment in Sonar
|
554,000
|
|
|
Buildings
|
900,000
|
250,000
|
|
Accumulated Depreciation
|
(290,000)
|
(80,000)
|
|
Equipment .
|
210,000
|
120,000
|
|
Accumulated Depreciation
|
(140,000)
|
(100,000)
|
|
Accounts Payable .
|
(50,000)
|
(40,000)
|
|
Bonds Payable. .
|
|
(100,000)
|
|
Deferred Tax Liability (goodwill amortization)
|
(1,814)
|
|
|
Common Stock .
|
(100,000)
|
(10,000)
|
|
Paid-In Capital in Excess of Par .
|
(600,000)
|
(190,000)
|
|
Retained Earnings, January 1, 20X3.
|
(747,000)
|
(238,000)
|
|
Sales .
|
(950,000)
|
(400,000)
|
|
Cost of Goods Sold
|
550,000
|
250,000
|
|
Depreciation Expense-Buildings .
|
40,000
|
10,000
|
|
Depreciation Expense-Equipment. .
|
25,000
|
10,000
|
|
Other Expenses .
|
176,000
|
75,000
|
|
Interest Expense.
|
|
8,000
|
|
Gain on Sale of Fixed Asset. .
|
|
(25,000)
|
|
Subsidiary Income .
|
(57,600)
|
|
|
Dividends Declared
|
20,000
|
10,000
|
|
Totals .
|
0
|
0
|
1. Prepare a determination and distribution of excess schedule.
2. Prepare a consolidated worksheet for the year ended December 31, 20X3. Include a provision for income tax and income distribution schedules.