Problem  3-2  (LO  2)  Simple  equity  method  adjustments,  consolidated  work- sheet. On January 1, 20X1, Peres Company purchases 80% of the common stock of Soap Company for $308,000. Soap has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Soap are as follows:

 

Required

 

 

	20X1	20X2
Net income . . . . . . . . . . . . . . . . . . . . . .	$60,000	$90,000
Dividends. . . . . . . . . . . . . . . . . . . . . . . .	20,000	30,000

 

 

On January 1, 20X1, the only undervalued tangible assets of Soap are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 20X1. The building, which is worth $25,000 more than book value, has a remaining life of 10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill.

1.    Using this information and the information in the following trial balances on December 31, 20X2, prepare a value analysis and a determination and distribution of excess schedule:

 

 

 

 

 

 

 

 

Required

 

 

	Peres Company	Soap Company
Inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100,000	50,000
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	148,000	180,000
Investment in Soap Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	388,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50,000	50,000
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	350,000	320,000
Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(100,000)   20,000	(60,000)
Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(120,000)	(40,000)
		(continued)

 

 

 

 

Peres Company

 

Soap Company

 

Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                 (100,000)

Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (200,000)

Common Stock, Peres Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (200,000)

Other Paid-In Capital in Excess of Par, Peres Company . . . . . . . . . . . . . .                    (100,000) Retained Earnings, Peres Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                 (214,000)

Common Stock, Soap Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                            (50,000)

Other Paid-In Capital in Excess of Par, Soap Company . . . . . . . . . . . . . .                                                       (100,000) Retained Earnings, Soap Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                               (190,000) Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (520,000)     (450,000)

Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       300,000       260,000

Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      120,000       100,000

Subsidiary Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (72,000)

Dividends Declared, Peres Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        50,000

Dividends Declared, Soap Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                           30,000 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                         0                    0

 

2.     Complete a worksheet for consolidated financial statements for 20X2. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.