Refer to the preceding facts for Parson’s acquisition of Solar common stock. Parson uses the simple equity method to account for its investment in Solar. During 2012, Solar sells $30,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $12,000 and ending inventory of $16,000 of merchandise acquired from Solar. At December 31, 2012, Parson owes Solar $6,000 from merchandise sales.
Solar has a gross profit rate of 30%. On January 1, 2011, Parson sells equipment having a net book value of $50,000 to Solar for $80,000. The equipment 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 affiliated group and, thus, will file a consolidated tax return based on a 40% corporate tax rate. The original purchase is not a nontaxable exchange. On December 31, 2012, Parson and Solar have the following trial balances:
On January 1, 2011, Parson Company acquires an 80% interest in Solar Company for $500,000. Solar had the following balance sheet on the date of acquisition:
Buildings, which have a 20-year life, are undervalued by $70,000. Equipment, which has a 5-year life, is undervalued by $50,000. Any remaining excess of cost over book value is attributable to goodwill, which has a 15-year life for tax purposes only.
1. Prepare a determination and distribution of excess schedule.
2. Prepare a consolidated worksheet for the year ended December 31, 2012. Include a provision for income tax and income distribution schedules.

  • CreatedApril 13, 2015
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