On January, 1, 2011, Perko Company acquires 70% of the common stock of Solan Company for $385,000 in a taxable combination. On this date, Solan has total owners’ equity of $422,000, including retained earnings of $222,000. The excess of cost over book value is attributable to goodwill.
During 2011 and 2012, Solan Company reports the following information:
During 2011 and 2012, Perko appropriately accounts for its investment in Solan using the simple equity method, including income tax effects. On January 1, 2012, Perko holds merchandise acquired from Solan for $10,000. During 2012, Solan sells merchandise to Perko for $60,000, of which $20,000 is held by Perko on December 31, 2012. Solan’s usual gross profit on affiliated sales is 30%.
On December 31, 2011, Perko sells some equipment to Solan, with a cost of $40,000 and a book value of $18,000. The sales price is $39,000. Solan is depreciating the equipment over a 3-year life, assuming no salvage value and using the straight-line method. Perko and Solan do not qualify as an affiliated group for tax purposes and, thus, will file separate tax returns. Assume a 30% corporate tax rate and an 80% dividends received deduction.
The following trial balances are prepared by Perko and Solan on December 31, 2012:
Prepare a consolidated worksheet for Perko Company and subsidiary Solan Company for the year ended December 31, 2012. Include the determination and distribution of excess schedule and the income determination schedules.

  • CreatedApril 13, 2015
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