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 2013, Solar sells $40,000 worth of merchandise to Parson. As a result of these intercompany sales, Parson holds beginning inventory of $16,000 and ending inventory of $10,000 of merchandise acquired from Solar. At December 31, 2013, Parson owes Solar $8,000 from merchandise sales. Solar has a gross profit rate of 30%.
During 2013, Parson sells $60,000 worth of merchandise to Solar. Solar holds $15,000 of this merchandise in its ending inventory. Solar owes $10,000 to Parson as a result of these inter-company sales. Parson has a gross profit rate of 40%.
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.
On January 1, 2013, Solar sells equipment to Parson at a profit of $25,000. 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 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.

Required
1. Prepare a determination and distribution of excess schedule.
2. Prepare a consolidated worksheet for the year ended December 31, 2013. Include a provision for income tax and income distribution schedules.

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Solar Company Balance Sheet January 1, 2011 Assets Liabilities and Equity Accounts receivable . 60,000 Accounts payabl . 70,000 Assets Liabilities and Equity Land Buildings.. . . Accumulated depreciation.... Equipment 120,000 Common stock 250,000 Paid-in capital in excess 10,000 Accumulated depreciation .. . Goodw . (70,000) 30,000 $540,000 ailities and equity $540,000 Parson Solar Compan Compan 49,76080,000 150,600 100,000 115,000 120,000 100,000 150,000 Land 604,000 Buildings 900,000 250,000 (290,000 (80,000) 210,000 120,000 (140,000 100,000) (50,000 (40,000) (100,000) . .. Accounts Payable Bonds Payable... (5,760) (600,000 (190,000) (747,000) 238,000) (950,000] (400,000) 550,000 250,000 10,000 10,000 75,000 8,000 (25,000) Sales 40,000 25,000 Subsidiary Income (57,600) 20,000 0 10,000 0