Question: Deko Company purchases an 80 interest in the common stock

Deko Company purchases an 80% interest in the common stock of Farwell Company for $850,000 on January 1, 2017. At the time of the purchase, the total stockholders’ equity of Farwell is $968,750. The fair value of the NCI is $212,500. The excess of cost over book value is attributed to a patent with a 10-year life. During 2019, Deko Company and Farwell Company report the internally generated income before taxes as shown.
Farwell Company sells goods to Deko Company for $50,000. Deko Company has $20,000 of Farwell Company’s goods in its beginning inventory and $6,000 of Farwell’s goods in its ending inventory. Farwell Company sells goods to Deko Company at a gross profit of 40%.
Deko Company sells a new machine to Farwell Company on January 1, 2019, for $30,000. The machine has a 5-year life, and its cost is $25,000. The affiliated group files a consolidated tax return and is taxed at 30%.
Prepare a determination and distribution of excess schedule and a consolidated income statement for 2019. Include income distribution schedules for both companies.

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  • CreatedApril 13, 2015
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