Question: Refer to the preceding facts for Parson s acquisition of Solar

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.

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  • CreatedApril 13, 2015
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